As it was announced on Monday, Gemini, the cryptocurrency exchange founded by the Winklevoss twins, has added a new feature that will reduce the impact that large buy and sell orders have on the Bitcoin price.
Gemini Block Trading will allow cryptocurrency “whales” to make high-volume trades that won’t appear in the exchange’s order book until they’ve been filled – will go live at 9:30 a.m. ET on Thursday, Gemini explained in a blog post. There’s a minimum threshold of 10 bitcoin or 100 ether for the block trades, meaning that smaller traders won’t be able to use the feature.
Gemini has positioned the block trading addition as a way to create “an additional mechanism to source liquidity when trading in greater size.”
Block trading allows large traders such as hedge funds to buy or sell large quantities without having large immediate effects on the price. The alternative is to place over-the-counter trades, which happen outside of exchanges, or to split trades up into smaller chunks in order to minimize the impact to supply and demand.
Market takers – who place the orders – specify whether the trade is a buy or sell; the minimum quantity; and a price limit. This information, called an indication of interest, is broadcast to all market makers simultaneously.
“In accordance with our commitment to an equitable, transparent, and rules-based marketplace, block orders will be electronically broadcast to participating market makers simultaneously, ensuring best execution and price discovery for those participating in the program,” the exchange explained in its blog post.
Transactions made using the block trading platform will be published on a 10-minute delay, ensuring that all market participants have access to pricing and liquidity information while also reducing the data’s propensity to have a cascading effect on the Bitcoin price (or the Ethereum price, as Gemini supports both coins).
In recent months, the market has been forced to weather at least three major sell-offs that have demonstrated the need for these trading services.
The first came when the trustee of now-defunct cryptocurrency exchange Mt. Gox sold more than $400 million worth of Bitcoin and Bitcoin Cash to settle the bankrupt company’s JPY liabilities.
Similarly, though on a much wider scale, taxpayers in the US and other regions have withdrawn as much as $25 billion to cover capital gains accrued during fiscal year 2017.
Finally, Fortress Investment Group revealed that it had sold approximately $200 million worth of Bitcoin it was holding.
While the latter sale was most likely done through an over-the-counter (OTC) trading platform like the one Gemini is launching, the other two have occurred in the order books.
Tom Lee, founder of Wall Street strategy firm Fundstrat, estimated in a recent note to clients that every dollar converted from cryptocurrency to fiat has a $25 impact on the cryptocurrency market cap.
On the other hand, large buy orders can spur outsized rallies, which is perhaps one reason that institutional buyers have been hesitant to trade cryptocurrencies more aggressively.