Written by: Gino Matos

Translated by: Saoirse, Foresight News

sFOX has released data showing that the trading volume in cryptocurrency dark pools continues to rise. From a negligible scale in April, it accounted for 15% of the total monthly trading volume by June. The company's report on July 30 also mentioned that among institutional funds on the platform, 77.7% are executed through over-the-counter trading, with only 18.4% flowing to public exchanges. In May alone, the trading volume in dark pools reached $147 million.

Diana Pires from sFOX stated in an interview with CryptoSlate that this is a structural shift, similar to the business restructuring seen in the stock and forex markets years ago.

Why Institutions Choose Cryptocurrency Dark Pools

Large orders placed on public order books leave clear traces. Other traders can identify trading patterns, execute trades ahead of time, or push prices in reverse before orders are filled, increasing trading slippage.

Pires cited examples of institutions like Jane Street and Citadel, which have strong motives to hide their trading footprints. Once trading patterns are recognized by the market, other participants can target reverse trades.

This is also the fundamental reason why an increasing number of cryptocurrency orders are starting to choose dark pools, over-the-counter trading, and platforms that can simultaneously distribute a single order to more than ten trading venues for execution.

sFOX alone connects over 40 exchanges and over-the-counter trading desks, with its institutional clients averaging 14 to 19 channels for completing trades each month.

After receiving large orders, over-the-counter trading desks split the orders into smaller ones before distribution, avoiding direct market volatility caused by a single transaction.

Pires summarized the core logic of cryptocurrency dark pools: trading platforms privately handle large positions, then split small orders to send to exchanges, with small orders having almost no impact on the order book. She believes that once this kind of capital flows into the public market, it helps enhance order book depth and narrow the bid-ask spread.

In the past, public order books could reflect the vast majority of real trading behaviors in the market, but now they can only represent a small portion of market transactions. A quiet exchange does not mean that institutions are not active. Large buyers can accumulate for weeks without placing any visible buy orders; large sellers can also reduce their positions significantly without creating huge selling pressure on the order book.

The Information Advantage of Tracking Whales is Being Actively Dissolved

Bitcoin and cryptocurrency traders previously had a natural advantage over other market participants: everyone was able to continuously monitor exchange fund balances, large orders on the order book, and large on-chain holdings.

Pires pointed out that dark pools are designed to eliminate this advantage. Trading platforms, over-the-counter desks, and brokers can see the underlying capital flow, and this information is protected by regulatory rules and client agreements, leaving retail investors unaware of whether institutions are buying or selling.

Simple cross-market arbitrage opportunities are also continuously disappearing. Previously, information spread slower than capital flow, allowing investors to buy low on one exchange and sell high on another for profit. Pires stated that as prime brokers and aggregation platforms scan dozens of trading venues simultaneously, they complete arbitrage before retail investors can capture the price difference, causing these opportunities to shrink year by year.

She predicts that the cryptocurrency trading market will ultimately take on a structure similar to the stock market: individual investors will no longer directly access exchanges but will instead do so through brokers, who will seek the best quotes on various trading venues on their behalf.

Retail accounts usually struggle to reach the minimum trading volume required for the lowest exchange fee tier, while brokers that aggregate massive institutional orders can easily meet the standard. Pires believes this gap will continue to push ordinary traders toward brokers, but this shift won't be driven by regulatory pressure as seen in the stock market.

Two Market Outlook Scenarios

Optimistic Scenario

Order aggregation platforms and mainstream exchanges handle retail orders just like institutional orders. Market spreads continue to narrow, slippage further decreases, and large orders breaking through thin markets reduce.

Trading opportunities lost from public exchanges shift to other arenas. On-chain and DeFi markets still retain public data on large holdings, providing avenues for traders wishing to speculate on market fluctuations; the regulated and compliant trading market trends will be more stable.

Pessimistic Scenario

For ordinary traders with small capital, the speed at which trading transparency disappears far exceeds the speed of expected trading optimization effects being realized. Retail and medium-sized investors will completely lose the ability to judge the movements of institutional funds.

Spread optimization and quality order routing services will still only be available to large clients who meet capital volume standards and can connect to prime brokers and aggregation platforms. Public exchange market signals continue to weaken, and participants relying on monitoring exchange order books will feel the changes first.

Regardless of the market direction, traders need to adjust their trading habits: do not treat the transaction volume of a single exchange as a reference for the overall market; before referring to exchange listing fee rates, compare the comprehensive trading costs across different channels; when the order book depth is insufficient, try to use limit orders to guard against market orders impacting prices.

Below the seemingly calm order book, there may be large-scale institutional trading hidden.

The cryptocurrency market is maturing, trading experiences are continuously optimizing, but the difficulty of market interpretation is on the rise. Retail investors encounter fewer sudden shocks from whale activity, but they also struggle to observe the most valuable movements of major funds.