The objective to make bitcoin more appealing to mainstream traders and investors has proven to be quite difficult to achieve. Bitcoin exchanges remain the primary source of buying and selling cryptocurrency. Some traders prefer more “off the books” activity, which does not impact the current price per BTC all that much. This is why so-called dark pools have been introduced not too long ago.
Explaining The Concept of a Bitcoin Dark Pool
The term dark pool relates to the financial sector. Look at it as a private forum for traders and investors to exchange securities or digital assets. Buyers and sellers agree to conduct trades at specific prices, yet none of this activity will be made visible on the public order book of said exchange. To the bitcoin world, this can prove to be quite powerful, as high trading volume will create price volatility.
Generating liquidity across dark pools can be a challenge, especially in the crypto world. Big players, also known as “whales“, will often converge on these dark pools to buy or sell large amounts of cryptocurrency. Most dark pools have a minimum liquidity requirement each investor needs to bring to the table as well, making them inaccessible to the general public.
Using public exchanges – either in traditional finance or in bitcoin – is only so appealing to the big fish. Keeping trading activities confidential and outside of the purview of the general public is more important to dark pool users. Moreover, the dark pool trading activity does not affect the publicly traded value of said security or asset. In the case of bitcoin, dark pool trades could occur for more or less value than the bitcoin price, off the books.
Additionally, investors rely on dark pools as a way to keep their cards close to the chest, so to speak. Even in the bitcoin world, there are quite a few spectators who may not necessarily be willing to be the first to buy bitcoin. Using a dark pool ensures all transactions are confidential, as no one knows who is trading with whom. To some people, this is very important, whereas the average bitcoin enthusiasts will be far less concerned about making their intentions clear to the rest of the world.
Kraken is perhaps the only public bitcoin exchange operating a dark pool. The company launched this offering in 2016, although it is unclear how successful this venture has been so far. It seems evident there is a demand for this type of trading platform, as investors want to buy and sell large amounts of cryptocurrency without causing a bubble or mass panic. A dark pool fits the bill perfectly in this regard.
TradeZero, a broker-dealer active in the world of bitcoin, launched their dark pool exchange in August of 2016. It is expected this offering will be expanded to include support for other currencies, including Ethereum and Litecoin. TradeZero is targeting non-US investors specifically and runs their dark pool service without charging a commission. It will be interesting to keep an eye on the bitcoin dark pool market moving forward, that much is certain.
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