bithumb bitcoin exchange south korea
South Korea's biggest bitcoin exchange was hacked for the second time in less than a year, and this latest incident exposes a major threat to crypto exchanges. | Source: REUTERS/Kim Hong-Ji/File Photo

South Korea’s Top Crypto Exchange Just Launched a Major Product, But is There Real Demand From Institutions?

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Bithumb, South Korea’s largest Bitcoin exchange by trading volume, has launched an over-the-counter (OTC) trading platform that will allow deep-pocketed traders to exchange crypto assets off the books.

In an official announcement, Bithumb Global Limited, a Hong Kong-based subsidiary of the South Korean exchange, said that it will cater services to institutional clients under the brand name Ortus.

bitcoin crypto exchange volumes

Source: CoinMarketCap.com

Is the Company Seeing Institutional Demand For Crypto?

Since late 2017, various reports have claimed that the OTC market is significantly larger than the cryptocurrency exchange market.

Last year, TABB Group estimated the OTC market of Bitcoin to be at least two to three times larger than the exchange market.

Referring to the Tabb Group research, Eric Wall, a cryptocurrency researcher, said:

“Just read an estimate from the TABB Group (in a $5,000 report) that OTC crypto markets exceed exchange volumes by 2-3x. That would mean 1 to 1.5 million BTC is traded OTC daily. Strange it’s not visible on the blockchain, which shows a meager 100,000 a day.”

At the time, a Tabb Group researcher emphasized that not all OTC transactions are visible on the blockchain because in most cases, buyers simply obtain the cold wallets holding Bitcoin.

Over the past 12 months, many of the largest cryptocurrency exchanges in the global market have made moves to penetrate into the OTC market.

In January, Binance launched an OTC trading desk and in October, Circle said that it has seen triple-digit growth in its OTC business.

cryptocurrency exchange binance

Source: Shutterstock

Exchanges primarily generate revenue from transaction fees by settling trade orders. As such, if there exists low demand for OTC trading from institutions, exchanges are unlikely to commit their resources in catering to that market.

The trend of a growing number of major digital asset trading platforms operating OTC trading platforms suggests that exchanges do see some demand from institutions in certain regions.

Rahul Khanna, the director of Ortus, the official brand of the Bithumb OTC trading platform, said:

“Institutions trading digital assets need to open accounts at exchanges and OTC desks around the world; however, there is no real solution for an aggregated liquidity provider or a trusted interdealer where Institutions can trade these assets.”

“To fill this market gap, Ortus will operate to allow institutions to buy and sell digital assets through a network of global liquidity providers and benefit from a competitive and best price execution service.”

The expansion of Bithumb to Hong Kong and the launch of its own OTC trading desk marks the first step the company has taken to date to grow outside of the cryptocurrency exchange market of South Korea.

Last year, there were talks of Bithumb potentially establishing a fiat-to-crypto exchange in the U.K. by the fourth quarter of 2018.

However, the exchange has not been able to finalize its expansion to Europe and it remains uncertain whether the company will push forward with its plans in 2019.

Bithumb Seems to Distance Itself From the Project

Speaking to CoinDeskKorea, a local publication operated by mainstream media outlet Hankyoreh, a representative of BTCKorea.com, the parent company of Bithumb, said that Ortus is a company that is paying Bithumb to use its brand name in the global market.

“Ortus does not have a direct relationship with Bithumb and the company does not intend to cooperate on the operation,” the representative said, adding that “[Ortus] is using the Bithumb brand as a partner company and as such, the company has nothing to add on the actual operation of the OTC trading platform.”

However, the official statement released by Bithumb Global Limited explicitly stated that Bithumb Global Limited is working under the Ortus brand.

“Bithumb Global Limited, a Hong Kong-based entity, announced the official launch of its block deal, matchmaking service catering to institutional clients under the Ortus brand,” the statement read.

For reasons unclear, Bithumb seems to be reluctant in being directly involved in the OTC operation, possibly because it is still at its early stage.

Featured Image from Shutterstock