Square’s bitcoin trading service has reportedly moved from public cryptocurrency exchanges to over-the-counter desks, a move analysts believe is going to improve its quality and turn it into a more sophisticated trading platform.
According to CNBC, Square revealed in its latest quarterly report that it’s Cash app is now trading bitcoin through “private broker dealers” instead of “public cryptocurrency exchanges.” This means that it’s now using private, over-the-counter (OTC) desks.
The change has been seen as a step towards a more professional bitcoin trading service, as moving off public crypto exchanges allows to “build a faster and more secure platform that would create less price volatility when trading large amounts of bitcoin,” experts revealed.
Meltem Demirors, chief strategy officer at cryptocurrency investment firm CoinShares, was quoted as saying:
Working with a broker likely gets Square better pricing and better execution services than floating orders on the open market, as well as more confidentiality.
Experts consulted by CNBC further added that public exchanges can be hacked, as a series of attacks in recent years have cost their users “tens of millions” of dollars. Using these platforms users can’t trade instantly, and their open order books reportedly allow competitors to track transactions and exploit them to their advantage.
Per Hunter Horsley, the CEO of cryptocurrency index fund manager Bitwise Asset Management, moving to OTC desks solves some of these problems for Square, as through OTC desks traders can move faster, while bypassing the need to deposit funds and ensuring orders remain private – a move that helps Square’s market activity remain a secret.
Another advantage OTC desks bring is related to what’s known as price slippage. Slippage occurs when investors sell large amounts of bitcoin – or any other cryptocurrency – forcing its price to go down on the exchange they’re using.
Price slippage often sees traders who sell large amounts of crypto sell below the price they intended, as by the time the order is filled the price has fallen. Per Horsley, an order worth a “few million dollars” could lead to a 5-10% price slippage on a public exchange, and a 0.5-2% slippage on an OTC desk.
A Safer Bet
According to Demirors, the move off of public crypto exchanges into OTC trading desks is likely motivated by a desire to be compliant with regulators. Square’s business reportedly draws a lot of scrutiny, and partnering with OTC desks can work in its favor as these are seen as less risky platforms.
While it’s unclear which OTC desks have partnered with Square so far, in June bitcoin brokerage firm Genesis Trading, owned by Barry Silbert’s Digital Currency Group, announced a partnership with the company, headed by Twitter CEO Jack Dorsey.
The announcement was made shortly after Square received a virtual currency license, known as a BitLicense, from the New York State Department of Financial Services. The license allowed Square to expand its bitcoin trading service to New Yorkers.
As CryptoGlobe covered, Square’s bitcoin trading service netted it $200,000 in the first quarter of this year, off of $34 million in BTC revenue. In the second quarter, the number doubled to $400,000, off of $37 million in revenue from BTC transactions.
Despite the surge, the company’s CFO Sarah Friar revealed its bitcoin trading service isn’t expected to drive the Cash app’s growth. She stated that "it’s not a major monetization engine. The goal is to continue to drive utility in the Cash app."