Inside institutional crypto trading: what the whales are buying

Transcript

GM good morning welcome to the milroad show The Daily crypto show that's more reliable than that hot tip your friend swore by I'm your host Jay Hamilton it's Monday February 24th and today's episode is all about what is going on in institutional crypto buying institutional markets are opaque they're not as clear to retail investors and it's difficult to understand what institutions are doing because they don't buy crypto the same way way that retail investors do and so we've brought on Robert Valdez Rodriguez CCO of kyck one of the leading OTC trading desks market makers and liquidity providers in

the space to give us an idea of what is happening with institutional flows right now because if you understand what the whales and what the smart money are doing you can often get a tremendous Edge in your Investments as I mentioned kyck is a leading Global liquidity provider Market maker algorithm Mick and OTC trading firm they've been around for seven years been a leader in the space for a long time they process over 500,000 trades every day across 85 different exchanges with some of the biggest institutions in the world so nobody sees this the way they do before we jump in do me a favor guys and gals please subscribe to the show wherever

you are listening follow us on podcast on YouTube it makes such a difference and helps us get bigger and better guest just like Robert today today's episode is brought to you by crypto.com cards check them out one of the best cards to spend your onchain dollars without further Ado Robert welcome to the milk Road Show well well thank you very much it's really great to be here so thanks for having me and uh look forward to uh to the discussion likewise yeah fantastic to have you okay so um obviously institutional trading is a little bit uh a lot of the institutional trading happens behind the scenes doesn't happen the same way that um Regular investors daily um retail investors trade in crypto and that's

what today's episode is all about is picking your brain to get an understanding of what the institutions are doing what the major milestones and events are that happened this past year before we jump into that though can you just explain what kyck does as if you were explaining it to a fourth grader in the in the simplest terms possible sure of course so the first thing that we kind of look at uh when we when we think about what kyck does in the markets is we think that liquidity is the lifeblood of all markets and all asset classes um so when there is sufficient liquidity in the markets participants institutional

investors and Retail investors are able to do what they want to do in the market and when liquidity tends to dry up because of either some sort of Crisis or some other event in the market when liquidity dries up no one can do what they want to do and and and it creates a level of of of crisis in the market so what we do at kyck is we spend basically all of our resources and energy in developing uh algorithmic trading models to make sure that we're able to provide liquidity provisioning across all markets across all geographies and across all tokens and we do that as a service for all of our clients which is a huge differentiator we're not a prop team or a prop desk we're doing that as

a service to the market to some of the largest foundations and projects in the market but we're also doing that as a liquidity provider to some of the largest institutional investors on the planet globally okay fantastic okay so today I really want to focus on the OTC trading desk part of your business because that's where OTC is where the biggest institutions the biggest whales that's where they make their trades you know when Michael sailor for example when he buys you know two billion or a billion dollars of Bitcoin he's not logging into his binance account and spot buying a billion dollars um so let let's just start by explaining let's say Michael sailor or an institution wanted to do a billion dollar trade they wanted to buy a billion dollars of BTC let's

say um how how does that happen how does that work so there's usually a bilateral relationship between a Institutional Investor and kyck where we will be transacting on a daily day-to-day basis we're giving them a commentary about what's going on in the market they might be just coming to us and say Robert kyck we have a big piece of business to do today and you know how do you recommend we we we transact that and given our experience in the market based on the institutional investors our counterparties urgency in the market will make recommendations about what the best way to execute uh this transaction we'll look at what's going on in volatility in the market we'll look at how much liquidity is being traded on

the day we'll recommend a way to go so it might be that the market is kind of quiet and we think that this particular Institutional Investor may want to pick a limit like level where he wants to actually do all of these purchases in the market and we'll say okay you know what let's Market's not super super volatile right now let's pick a limit let's let the market come to us and if the market starts moving away from the client's limit of where they want to execute we can then update the limit right so that's one way of doing it just doing things on a limit order basis with the entity and it could take depending on the size and the activity it could take a day sometimes a couple of days uh to execute something if if the

counterparty really stuck on a specific price that they want to do it at right and you're subject to where the market is and letting the market come to you then there's another there's many other types of strategies but one very common probably the most common strategy is to implement what we call a teawap order strategy with we so we use our algorithmic um models and a teop really stands for time weighted average uh price right so what we do is we'll work with a big institution we'll say okay we're gonna cut this big order that you have to do let's say it's a billion dollars we're going to cut that into a bunch of different orders and we're going to execute this for you on a Time weighted average price basis that could

take several days to do a billion dollar order depending on the market it might take three or four days if it's a $200 million order can do it in an hour so it all depends on the volatility and and and the activity but then we as a firm which we do it kind of a little bit differentiates ourself so we give a report back to our institutional M say this is exactly what traded in the market during this period This Is How We traded it in the market for you and we'll give a report hopefully showing that we beat what the market was doing from an execution perspective but if we didn't because of volatility we really it's all about transparency that so that the Institutional Investor can really feel that they can trust how we executed in the market so that those are the two

main ways that you can execute for an Institutional Investor and there are others more sophisticated algorithmic types of strategies that you can but the the the takeaway I think for for today's episode and for our listeners is when an institution wants to do a big buy you know a billion dollars several hundred million dollars they're calling up a provider like yourself like kyrock and they're saying hey help me come with a plan in order to execute this where I get the pricing that I want so I'm not doing a not necessarily doing a buy all at once although you did say that sometimes the market can come to you and you can do a limit order on that but there're you are advising them in how to do this in order to get the pricing they want and then also probably not to

attract too much attention because some of these institutions don't want the whole Market to see oh my gosh a massive billion dollar buy just happened if it's Michael sailor he wants everyone to know and that's fine but there's also there's an aspect of sometimes do this in a way that doesn't lead a certain token price to to have a big green green candle because you all of a sudden suck a lot liquidity out so there's there's a lot of strategies around the way this is done obviously really I couldn't agree with you more on that point in fact 99% of all institutional investors would love to be able to execute a billion dollars without any Ripple in the Market at all and that kind of is really the job of ourselves the liquidity provider uh in

the market to you know our expertise in the market is able to do it without anyone knowing that anything even happened in the market so couldn't agree with you mark right right amazing it's incredible that you do that shout out it's uh I'm very impressed that you were able to pull that off uh okay so let's let's talk about some Trends now you are working with these institutions you're doing these big trades you're helping them do big buys think there's two main trends that I want to talk about one I want to talk about is what happened in 2024 like let's look back over the last year and understand was there a big is is there what are the growth Trends in OTC trading right now that you can see because from from my outside point of view I think that there is tremendous

growth happening in institutions buying but I don't it's tough to see that because we don't exactly know there's a lot of a lot of speculation that a lot of Institutions are buying and a lot of governments are buying but is that actually happening so what are the trends that you're seeing right now so I would say that the the very first Trend we saw in in uh 2024 March 2024 was leading up to the Black Rock ETF and to me that was really the the the biggest I would say buying price pressure that we saw from everyone it wasn't just institutions it was the whole Market getting ready and preparing for this potential ETF launch and you know I

think we saw over you know 30% 40% increase in pricing uh we saw ourselves as a firm saw a ton of buying from all types of players it was very very widespread we did not see deep institutional players coming in yet um we didn't see any like Brokers registered investment advisers that was all I would say very tame and most of it was I would say you know I would say mostly retail is type of of of players uh some institutional players that were crypto native jumping in as well so that I would say led the majority of the flow that we saw for the first part of the Year leading up to the 100,000 in

Bitcoin and the Bitcoin dominance versus the rest of the crypto Market really led the way so those were that was I would say the major Trend it's pretty stable I would say throughout the rest of the year until we started getting closer to the elections and then we again we saw uh the same level of buying in right after the elections except we did see pronounced institutional buying in the in the last quarter of 2024 H very interesting and when you look year-over-year KY Rock's been operating for uh seven years I believe correct me if I'm wrong on that are are you seeing orders of magnitude increase year-over-year in institutional buying

of crypto absolutely I would say that um at least for for the kyrock from a kyrock perspective this year over last year we saw 2024 over the year before and certainly this year uh exponentially increases like two 3x the amounts of volumes that we've seen in in the past so to me um it's a real and then after the elections it just uh increased even more um I just read an article uh that 13 B finings came out at the end of of of last quarter and showing how many new institutional investors were adding uh crypto to their portfolios these are like names like the state pension fund of of Wisconsin the Abu Dhabi Sovereign fund I mean we're

talking like real real like big institutional players have been adding crypto most of it has been through ibit and through other ETFs because that's the easiest way for them to get exposure but the amount of new types of institutional Global Investors that have been adding crypto specifically Bitcoin to their uh portfolios has been you know amazing and I think I think it's just gonna continue that's I was gon to say how do you think about the future and the rest of this year and Beyond well if you even if you look at like a a Trad five CME Futures open interest in Bitcoin Futures I think in in the in the in the first quarter of 2024 when the big move up there was like 11 billion dollar of open interest in the Bitcoin

contract and now it's like double that amount right of open interest so and you know that the largest players in the in in that market are all large institutional investors trafi investors uh that are in there so to me it's just the beginning uh you're going to start seeing U more and more of the these types of of real institutional investors enter the market but in addition to that what we haven't seen yet what I think is going to start happening some of the registered investment advisors the ones who weren't really allowed to offer this to their clients that's coming and when that starts coming that's going to drive more retail because retail has been absent from this whole move actually and once the raas start coming into the market allow and being able to offer this to their retail clients you're

going to see another bump up that's going to be retail driven uh and that could be pretty explosive yeah it's it's hard to it's it's hard to separate all of the noise and R is a great point because I think to us to to to a lot of the people that are in crypto every day we assume that oh everybody every investor has access to this right and yeah you can go buy it now of course every investor technically has access to it you could go you know download a wallet and get a ledger and you know set up but 99% of people are just not going to do that they don't want the self- custody risk and they don't know they don't have the tech wherewithal to to understand that so they need to buy it through more trafi

rails H and I think that we all forget that so many people invest through the big Banks right they invest through their R and A lot of these big Banks Goldman Sachs JP Morgan they're not allowed the RAS aren't allowed to advise their clients on buying Bitcoin even Bitcoin let alone other tokens yet because it's considered such a high-risk asset it has to go through all these processes and procedures so it's it is like these flows are these massive flows just they're not these pipelines aren't even open yet and obviously Trump being in and the SEC changes like all these things are Tailwinds that will lead to the changes necessary um but I remember I don't remember who he was talking to

it might have been James saart from uh from Bloomberg was saying that um for for a lot of these like for JP Morgan Goldman Sachs for some of these larger Banks to be able to allow their raas to recommend these type of assets to their clients it's still like we're still like six to 12 months away from that like we're not even there yet you're 100% right and I hear that from everyone uh whether it's trfy friends or whether it's people are in the market you know they might be in crypto but they have a legacy you know personal account with this raia and they're like and they they don't even let me do crypto yet you know so it's uh it's coming and when it does it it'll it'll start a whole new wave but one of the other areas that I think you touched on and I think is important

is the regulatory landscape in the United States and I think you're going to start seeing we already are seeing we we've had more dialogues with real large institutional investors in the last three months than we've ever had ever in the history of kok um and and it's some of the biggest names you've ever heard in in the market they're not only just starting to get access to their portfolios through ETFs Etc but you know they're thinking about planning for self- custody who are they going to use they're going to start owning these things these tokens outright it's not just Bitcoin it's not just ethereum or you know they are moving in to crypto and it's super exciting and I think that a lot of it's led by um you know this

new regulatory hopefully this new regulatory environment that we see in the United States that's that's amazing it's so exciting to hear and I wanted I want to dive deeper into which tokens you're seeing people these institutions Buy but before we do um just to wrap up the regulatory conversation when you project out do you think that we're on a um a linear scale up with institutional flows coming into crypto or is there any major events or Milestones that you still that we still need to get through before we see the big pushup I think it's going to be

linear until we get some clarity uh uh as far as but where where exactly we're going to go with regulation without getting too deep into something a tangent like I think stable coin regulation is going to be massive um it's going to drive not just in like big institutional investors but it's going to it's going to drive types of organizations that may not have had access necessarily to to crypto to stable coins and a way for facilitating payments around the globe it'll be a very important part of it right that's going to drive of course Investments of institutional investors investing in Bitcoin and others but that type of regulatory framework when that becomes clear the the the the cat that will be the Catalyst for a big move higher until then it'll be it'll be linear until

until the Catalyst if we get something regul something regulatory Clarity out of the United States which we haven't got yet all we have right now is a desire to become more clear once we get that it's gonna I think it'll it'll it'll be exponential again it'll be the next wave so TR Trump launching a mem coin wasn't a sufficient regulatory Clarity for everybody that's a you know okay let's chat about uh what what are what are institutions buying because you said it yourself and this is super interesting they're not just buying Bitcoin and ethereum which would be the two ETFs that are available to them by and I think that most people sitting most people who do not actively work in

the institutional space of crypto just assume that it's I think most people assume it's just Bitcoin not even ethereum can you can you talk to us about what they are buying so sure so um what we're seeing is is of course the majority especially the First Institutional entrance it's Bitcoin you know and especially because Bitcoin the dominance that Bitcoin has had over the rest of the crypto landscape from from a market uh pricing perspective has dominated that's always been I would say the first uh the first token uh of institutional investors and it's the easiest to get by any type of investment committee that is thinking about getting into crypto um it's the one that's been really without any legislation against it but when you're having other types of

hedge funds or Venture funds that are dipping their toes they're interested in the projects that's that are going on there they're investing in actual projects which means that they're investing in other tokens other than than Bitcoin so if you were to ask me okay what how how do you see the the breakdown still the majority is you know I would say 70% Bitcoin eth with I would say some of the other uh second generation or first generation alts probably about you know the rest of the 20 27% 28% with very very I would say uh cryp very Crypton native almost degens are like doing like 2% into the memes but other than that and and the reason and that's one of the thing that surprised me the most is how much activity that we've seen in in meme

coins they are buying meme coins I've heard this I don't I don't think institutional investors necessarily are buying so much but because we we we have seen some activity in institutional investors buying meme coins but M and that what what that points to is the success of eth and salana those the fact that those have have such a strong community that there that there's some types of memes that that institutional been okay to dabble with more as a speculative than anything else yeah what what what uh what has really surprised me from reading some reports about OC OC's trading uh Trends in the last year was was the amount of meme coin buying that was happening I and and let's be

clear I'm surprised that any memec coin buying is happening by institutions right so like I think you know we're not talking about that being as you said it's still a very small percentage of what hap is happening but the fact that they're that they're at all interested in it that they're open to it and I also don't like there's no way that the institution they're not buying my understanding at least and you correct me if I'm wrong they're not buying the newest meme coins and they're buying the Blue Chip meme coins that have been around for a while that have strong Market caps that have trading history and that you can look at charts and that you know they sit there and they say hey look yeah let's speculate on some of this because there's a genuine belief that there's opportunity for some big returns yep and again I don't think it's

any of the major like Pension funds or anything like that but there other institutional hedge fund types that have been dabbling in very small amounts though that was my biggest surprise too as well you know that that we saw as much demand as as as as there was incredible incredible and then what about um between so okay so Bitcoin takes up the the the most of it uh between like ethereum Solana like the O the other major the other major tokens right yeah is there any concentration happening there yeah listen even though salana and eth gets a terrible bad name because it was terrible performance this year and you know it just been dragging them you know dragging the market and a lot of hype around salana but still and

and others but to me you know between eth and salana they still get they still gather the majority of all the non-bitcoin uh institutional flows for sure okay okay great when you look at the market right now one thing that we've been talking a lot about on the show is the this Divergence between retail sentiment which is so low right now and there's so much fear in the market and a lot of that is a result of a lot of people going too far down the risk curve and buying Trump token or Melena or uh Libra or pick your new meme coin that launched and then uh unfortunately does not turn out very well but then at the same time we we had

bitwise uh on the show last week and they talked about how on the institutional side they've never seen such bullish and optimistic views what are you seeing on the institutional side in terms of the sentiment right now and where we are in this current market on the institutional side uh I've never seen it more more uh positive I've never seen like I said before we've never had as many conversations as we had with some of the biggest institutional investors about either adding crypto to their Investments or increasing it and I would say one of the areas within OTC that's actually been absent over the over many of the of the years in the beginning that's that's uh that I think is expanding his derivatives so we're seeing a lot of Institutions are saying okay well all right I'm long these I'm

along these this token or I'm along this position what can I do with it how can I hedge it how can I do some covered calls on it what do you think you know and they're engaging us with other types of strategy specifically in derivatives uh and perss as well when you doing the basis trade but the options part of the of the business is an area that is really growing significantly and that if you imagine if you're if you're running an options desk right or an not like we run all of our own Greeks we don't just like go on thereit and put a spread on it we run all of our own Greeks we manage our own options book so whenever we do an option that create that that requires us to do a Delta hedge it requires us to do a gamma Hedge and all

of that requires activity in the spot market right so um that's going to be increasing and the more institutions are looking to either hedge their exposures using derivatives and options or to create some sort of call writing yield using options that's going to just create a lot more institutional demand uh for buying for buying it so those types of conversations are happening with us all the time incredible it's uh it really makes me feel this this Divergence in sentiment is just it's it's a very we're at a very strange time in the market where you you you don't often see this Divergence where there is so much bullishness and positivity coming from institutions and really the biggest money and I think

maybe the reason is is because they're still coming they're not even here yet so I think one thing that's hard to you know and I'm sure you can relate to this I'm guessing that these institutions they don't see these meme coins that are you know these awful stories and this you know the the rug poles or the liquidity events they're not seeing that they're just sitting there thinking yeah crypto looks amazing and everything looks great so they their their Echo chamber is very different than everybody who's in here who sees a lot of the bad stuff that is being that is happening and then a lot of the wipeouts that are happening which is scary which leads you to be Fe fearful yourself is is that the case in in in your seat that these institutions

they're not asking about these these this bad stuff are they very few very few are really focused on on the top the top tokens that we talked about right so they're not that's really not their focus their focus is really to create exposure to an asset class that they haven't had exposure to before that they think has what I would say a huge exponential you know upside right so how do they how do they how do they access this asset class and it's more pent up demand than anything else that they've been waiting to do and they haven't been able to and now just becoming a lot more you can bring up Bitcoin and an investment Committee of a major institutional and it's and you're not going to get fired you know you're gonna be like oh yeah let's discuss this how do we make this happen how do we

implement the right uh security and protocols for us to really be able to invest in this asset class so that's a very different conversation than what was going on two years ago yeah incredible it's a it's just such an exciting time right now it's the next uh you know with regulation coming we'll see what happens there and how quickly it happens it's nobody can predict that uh but it's very clear that this is a priority for Trump that the new SEC is clearly heading in the right direction uh I think yeah it's uh the outcome is you know it's going to be truly something that I don't think any of us can fathom and the timeline always difficult to predict I can't uh I don't have a crystal ball I don't know exactly how it's going to go but certainly yeah it feels like we're headed in a very

very good direction right now yep again I couldn't agree more and the conversations that we're having with institutional investors you know we're just trying to be there for all of them help them along the way once they're ready to to act want to be able to just help them uh along the way really and advise them well that's fantastic we are so grateful to you and the entire KY Rock team for everything that you do and the way that you help the whole Market work because as you said liquidity is King and without liquidity markets do not function so we are very grateful for everything that you guys do Robert thank you so much for joining us today thank you so much it really is a pleasure really appreciate you having on and love to come on anytime thank you fantastic wonderful everybody listening in let us

know how you're feeling right now you feeling bullish you feeling bearish listening to all the institutions that are coming into the space how you guys feeling and also do me a favor hit like hit subscribe wherever you're listening it does us such a big favor once again thanks for listening in have a weed awesome day everybody we'll see you again tomorrow as always if you liked today's episode please hit subscribe and make sure you follow us you don't miss out on the next one there's also a link in the description to our free 5 minute daily newsletter where we simplify crypto for you while making you laugh and if you're willing to step up your crypto investing game we're going to also leave a link for milk Road Pro you get access to our portfolio where you

can see exactly what we are buying this is your number one resource to help you invest successfully in crypto one final note this show is for educational purposes only and nothing we say is financial advice investing in crypto or any asset is risky and you should never invest more than you can afford to lose thanks so much for listening in my friends have a wicked awesome day