The recent decline in the value of Bitcoin hasn’t deterred institutional investors and hedge funds from buying the digital asset, according to directors of London-based OTC firm BCB Group.
One of the firm’s directors, Daniel Fruhman, spoke to Coin Rivet to discuss the day-to-day chaos that ensues over trying to close multi-million dollar Bitcoin deals.
'The pace of change is unlike anything in any other market'
— BCB Group (@BCBcrypto) September 18, 2019
Investors typically opt to purchase cryptocurrency over-the-counter to avoid slippage due to a lack of liquidity on exchanges.
And the levels of investment have remained significant, with “tens of millions of pounds” being traded on a weekly basis via BCB Group.
From mining Bitcoin in 2013 to closing multi-million dollar deals
Daniel Fruhman and his brother, Joel, didn’t stumble across a role at BCB Group by sheer chance. They have been involved in the cryptocurrency industry since 2013 when they first started mining Bitcoin.
The brothers were both studying at the University of Cambridge when they stumbled upon an ingenious idea to mine Bitcoin and by doing so accrued a network of miners and early cryptocurrency investors.
“We met a lot of miners and kids who had a lot of Bitcoin, but there was no robust or structured way to liquidate Bitcoin. This is when we got into the whole world of brokering and transactions, and while it was lucrative when they closed, most of the time hedge funds and buyers would waste our time,” Daniel said.
“Then we came across BCB Group. They were registered by the FCA as a payment institution and authorised by the Swiss financial body VQF. The staff all had senior roles in traditional financial services and they began to bring that experience into crypto. So we naturally started to send our clients across to BCB, at which point it became such a large part of their revenue stream that it made sense for them to acquire our business. They inherited a lot of our clients so had access to a lot of Bitcoin, but we also brought experience in scaling young technology businesses.”
Aside from the murky world of over-the-counter Bitcoin deals, BCB Group now provides corporate payment services for the likes of Galaxy Digital, Bitstamp, BitPay, and other major liquidity providers.
“We’re like a Revolut for business dedicated to the crypto space. You could call us prime brokers as we provide liquidity settlement and clearing, and will soon offer credit and derivatives,” he added.
How much Bitcoin does BCB trade OTC?
In terms of actually getting major deals over the line, BCB Group facilitates between $10 million and $100 million per week, with “hundreds of millions” in payments being processed in and out of their clients’ accounts.
One key takeaway from BCB Group’s growth is the rise in institutional investment from major banks, hedge funds, and family offices, although Fruhman reveals how the fundamental changes in the market have been more important than the rise in price.
— BCB Group (@BCBcrypto) July 29, 2019
“We’ve definitely seen a rise in investments from institutions, but more importantly we’ve seen less of the hype from the retail sector. We’re starting to see fundamental changes in this space. Bakkt have launched physically settled Bitcoin futures, Facebook have announced Libra, and you have insurance companies like Allianz getting involved in blockchain technology,” he continued.
“We’re less interested in the price. We look at other metrics that signal strength such as Google Scholar citations about Bitcoin, GitHub commits, VCs investing in the space and jobs being taken for blockchain and crypto developers. These are the really important strength indicators for this industry.”
‘Maturing’ Bitcoin is here to stay
Despite being just 10 years old, Bitcoin has established itself as a notable investment opportunity among retail companies and institutions, but the way in which people trade and utilise Bitcoin is transforming on a weekly basis.
“Two years ago you could just arbitrage spot on exchanges and make a lot of money,” Fruhman added.
“But that’s all you could do. Now more recently with Deribit, LedgerX, Bakkt, and CME, you can trade futures and options, and there are some interesting arbitrage opportunities there.
“But this is still only really the beginning. All of these financial products that hedge funds are used to in traditional markets will eventually come to crypto.”
While Fruhman admits that much of the innovation will come as a result of emerging blockchain and smart contract technology, he sees Bitcoin as an ideal candidate to be “digital gold”.
“It [Bitcoin] has all of the facets that investors usually see in gold, but it’s more easily transferable, divisible and verifiable. It’s also scarce. Whether or not it can make it as a currency remains to be seen, but if it doesn’t, there is Libra and a lot of other contenders.
“This technology is just 10 years old. There are still huge amounts of innovation and developments that will occur before we see real mass adoption. But I do believe we are witnessing the evolution of an incredibly powerful technology. One that will be as disruptive as the internet, if not more.”
One of the major stumbling blocks for Bitcoin and cryptocurrency moving forwards will be how the industry is regulated. The SEC in the US has recently been clamping down on a number of ICOs, but the FCA in the UK seems to be taking a forward-thinking approach.
When asked whether the UK could become a hub of cryptocurrency innovation after Brexit, Fruhman replied: “Yes, definitely. Our team are talking to the FCA on a regular basis, and I think while they’re not the most forward-thinking, they’re not far behind.”
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