Cryptocurrencies aren’t just for individual investors anymore. Two years after Bitcoin burst into the institutional financial scene by being listed on CBOE and CME futures markets, it’s clear that the first and still most popular digital currency is here to stay, and it’s attracting the attention of more institutional investors.
Now, this process is becoming easier and more direct.
Cryptocurrency derivatives exchange Deribit is partnering with Paradigm, an institutional-grade OTC communications platform, to provide institutional investors with the world’s first multi-instrument block trading solution for crypto derivatives.
The project recently came out of stealth mode, and it enables a new approach to derivatives of Bitcoin and Ethereum.
Consequently, institutions can directly negotiate crypto derivative trades while chatting on Paradigm, and, once the arrangement is approved by both parties, the contract will automatically submit to Deribit.
Investing with block trades
While institutional investors can acquire crypto derivatives from several different platforms, the ability to privately negotiate futures or options contracts changes the game entirely.
This process produces block trades, large investment quantities that are traded at a negotiated price outside of market valuations.
For instance, institutional investors often prefer this methodology when insufficient liquidity prevents the execution of large trades in a single transaction, and it provides a more direct avenue for diverse expressions of crypto investments.
While this method is widely available in traditional financial markets, crypto investors haven’t had the opportunity to utilize block trades associated with an exchange to execute derivatives contracts. Instead, investors were relegated to privately negotiated trades using communication platforms like Telegram and Skype, which they had to independently communicate to Deribit’s order book.
This approach dependent on liquidity, which meant that market forces could interfere with block trades. This OTC approach eliminates this problem, ensuring that investors always have access to their agreed block trades.
Moreover, block trades can include both Bitcoin and Ethereum futures and options in the same block, creating a diversified block trading opportunity in a single agreement.
A doorway for institutions
For those interested in participating, Paradigm provides counterparty management tools that include a directory of available investors that users can “approve” before engaging in negotiations.
This independent KYC exam aligns with emerging regulatory requirements and protects investors from bad actors and unprepared counterparties.
Block trading will be available through Paradigm using the Deribit API. Currently, Paradigm is only accessible by invitation, and those interested in joining can do so on its platform.
The partnership between Deribit and Paradigm occurs as investors are rekindling their interest in digital currencies. 2019 has seen the price of cryptos jump significantly, and, at a time when other investment vehicles are already at an all-time high, cryptos represent an opportunity to derive more prolific returns.
With institutional interest steadily growing, comprehensive capabilities are in high demand, and block trading certainly falls in that category. With Deribit and Paradigm’s partnership that process becomes more straightforward, more secure, and undoubtedly more accessible.
It’s a significant step forward for institutional investors, and, as we’ve seen before, that’s an important development for the entire crypto space.