Why Bitcoin Price Remains Significantly Undervalued: OTC Market

The price of Bitcoin recovered relatively quickly after the security breach at Bitfinex settled, bouncing back to around US$630. The rapidly surging price of Bitcoin led to various presumptions from experts suggesting that it may be the next big spike of Bitcoin price which was predicted earlier this year. However, the price of Bitcoin remains at US$607, which is a severely undervalued price of the digital currency.

When measuring the value of an asset or a currency, researchers and analysts normally look into the total buy and sell orders and compare the differences in demand and supply. For instance, the demand for Bitcoin has been significantly higher than its supply, because their has been more buy orders placed on trading platforms than sell orders.

While this method of price valuation is used widely throughout many markets, it may not be specifically applicable on the price of Bitcoin because it eliminates a significant chunk of the digital currency that researchers, analysts and investors continue to overlook: the over-the-counter market.

Currently, the exchange market of Bitcoin processes around US$71 million trades on a daily basis. That is, exchanges like Bitstamp, Bitfinex and Kraken enabling traders to buy and sell bitcoin on regulated exchanges. However, most if not all price data charts exclude over-the-counter markets because there is no actual method of gathering information from all peer to peer trades.

Popular over-the-counter exchange platforms like LocalBitcoins are exceptions as the LocalBitcoins team gather all its data and releases it as weekly trading volumes to show and compare trading volumes in regions like Russia and other countries with comparably poor Bitcoin infrastructures.

Other major over-the-counter exchanges or brokers don’t release their data and that makes it virtually impossible for analysts and traders to breakdown.

According to Civic.com ceo Vinny Lingham, the OTC market for Bitcoin is much bigger than the exchange market. As a broker himself, he asked some of the more credible sources in the over-the-counter market that stated 8 figure purchases are now common.

“Typically, this year has been largely 66% buyers — 33% sellers in the OTC market according to my sources, but since the Brexit last week and the recent run-up, even more buyers have entered the OTC market — which is not being reflected in the price,” said Lingham.

If some buyers are purchasing tens of millions of dollars worth of Bitcoin on a daily basis, that easily surpasses the exchange market, which stands at US$71 million.

The price of Bitcoin at the moment attributes to the exchange market, which may only account for 50% of the entire Bitcoin trading market. Furthermore, more over-the-counter deals are being closed in regions like China that have numerous major mining pools that generate large amount of Bitcoin on a daily basis.

Sources: Vinny Lingham, Image Credit: Europa.eu

About Joseph Young

Joseph is a web developer and designer, writer and a passionate musician who loves to travel often. He’s worked as a researcher for a number of venture capital firms and as a freelancer designer for resorts and corporations in Korea and the Philippines. Joseph will be covering new technologies, startups, technical analysis and breaking news in the bitcoin industry.