B2C2, a London-based over-the-counter (OTC) market maker, is sharing its data and allowing transactions on the Los Angeles-based exchange aggregator SFOX.
The partnership began at 10 a.m. Eastern time (15:00 UTC) Wednesday. It offers traders more access to price discovery in a thinly traded cryptocurrency market that lacks transparency. It also allows traders to view comparative pricing with exchanges and over-the-counter markets.
Price discovery is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers.
Estimated by research firm Alite Group to be over 65 percent of the overall cryptocurrency market, OTC trades are transactions that don’t take place in a standard exchange. They generally range in size between $50,000 and $250,000 in cryptocurrency and are often much larger.
Creating market efficiencies
SFOX aggregates — that is, combines — exchange order books to give traders better pricing and help with “slippage” issues. A big problem on many cryptocurrency exchanges, slippage is when a trade participant receives a different trade execution price than expected. Adding B2C2’s OTC pricing is expected to increase liquidity, in turn helping to solve the slippage problem.
OTC trades in crypto tend to be more expensive than exchange prices. One of the reasons is that OTC desks bake in fees to price, whereas exchanges take their transactional fees at execution. The B2C2-SFOX partnership allows traders on their platform to view comparative pricing with exchanges and OTCs.
Unlocking price data
Unlike exchange-based trading, volume and liquidity are much harder to track with OTC deals since they happen via email, phone or messaging apps like Telegram or Skype. SOFX expects B2C2’s data feed will provide more transparency by offering a glimpse into the OTC market, even by showing small-sized orders.
B2C2’s software offers more flexibility than a manual desk that takes in and delivers orders. Such automation lets the firm execute trades worth as low as $1,000 around the clock, B2C2 CEO Max Boonen told CoinDesk.
All about algorithms
Though tiny trades seem arbitrary, they are many times the product of algorithms from various aggregators such as SFOX at work on exchange order books. Such regular flow of orders give better pricing information.
After going through Silicon Valley’s YCombinator startup accelerator in 2014, SFOX originally started out by providing OTC services using its algorithmic technology.
Meanwhile, B2C2 has been a player in the OTC world since 2016. However, they are more known for serving the European market.
Thus, the pairing doesn’t just give the U.S.-based platform access to OTC pricing but also a sense of where Europe is trading the largest cryptocurrency market pairs.