Analysis has emerged that the selling volume accumulated in Bitcoin over-the-counter (OTC) transactions cannot be digested and is stagnating. This phenomenon in OTC volumes is one of the phenomena that occurs when prices are higher than market expectations.
New thing I learned: Kiyoung Ki, CEO of CryptoQuant, a cryptocurrency on-chain data platform, said through his “Increasing OTC balances and falling Bitcoin prices suggest that these volumes have not yet found buyers,” he said.
Background of the issue: OTC refers to 1:1 trading that takes place in a private environment rather than an open trading environment like a cryptocurrency exchange order book. Because transactions are carried out according to the amount agreed upon by both parties, a large amount of cryptocurrency can be sold and purchased at once, and the characteristic feature of this transaction is that it does not affect the market price. It is mainly used for bulk transactions between institutional investors.
In the Bitcoin world, entities that do a lot of OTC trading include spot exchange traded fund (ETF) issuers who need to operate large funds, and Bitcoin miners and whale investors who need to buy and sell large amounts at once.
Important point: CryptoQuant has been pointing out that the mood in the OTC market has changed for several weeks now . This is because the Bitcoin balance on the OTC desk, which was almost at the bottom in early May, suddenly began to increase rapidly. They predicted that Bitcoin ETF net outflows increased and OTC balances increased as Bitcoin miners sold their Bitcoins, and significant liquidation will be needed to resolve this and cause the price to rise.”
According to CryptoQuant data, this is the first time since the related statistics have been compiled that OTC balance has increased at such a rapid rate. The previous steepest increase was in November 2022. As FTX, the world's second-largest exchange in terms of trading volume at the time, went bankrupt and the prices of cryptocurrencies, including Bitcoin, plummeted, the OTC balance increased significantly. This is because there are people willing to sell a large amount of Bitcoin in the market, but there are few people willing to buy it.
What happens next: The problem of selling balance accumulating on the OTC desk is actually more of an issue of investor sentiment than an issue of indicators. This is because the current Bitcoin price is not low enough to encourage OTC. As the price of Bitcoin has broken out of the bottom of the range that was maintained until mid-June and has fallen to around $60,000, there is a possibility that it will resolve in the near future once investment sentiment recovers.
However, if spot ETFs and Bitcoin miners continue to accumulate OTC volume in a situation where no one wants to buy it, this volume is expected to flow into the centralized exchange order book sooner or later. If this happens, further price declines are expected. As of the Binance exchange on the 26th, the price of Bitcoin fell 0.48% compared to the previous day, hovering around the $61,500 level per piece.
