Do crypto markets have dark pools, and why do big traders use OTC desks?

Yes, in a sense: crypto has dark pools, and also over-the-counter (OTC) desks that do much the same job, and the reason is the same as in shares. An OTC trade is a large transaction negotiated directly between two parties, bypassing the public order book to avoid moving the market price against yourself. Executing a $50 million Bitcoin order on a public exchange order book would cause the price to move significantly against the buyer, the phenomenon called market impact or slippage. In thinly traded cryptocurrencies slippage can become extremely large.

An OTC desk gets around this by absorbing the trade without broadcasting it. It quotes one agreed "block" price for the whole volume, and the deal is settled privately. A dark pool does something similar by not displaying orders before they match. The details differ from share markets, but the principle is borrowed from them: large orders left on a public order book leave clear traces that other traders can use to trade ahead or move the price against the order.

How big is this? Nobody can say precisely, because these deals are generally private and not reported, since they do not happen on an exchange; the practice itself is legal. In 2018 the research firm TABB Group and the start-up Digital Assets Research claimed that crypto OTC volumes ranged anywhere from $250 million to $30 billion, at times far more than the roughly $14 billion traded on crypto exchanges. A range that wide mostly shows how little of this market the public can see.

The debate echoes the one in shares. Diana Pires of sFOX, a firm that offers crypto dark pool trading, argues that the flow helps order book depth and narrows spreads, because big positions are broken into small orders sent to exchanges. The flip side is that retail investors cannot see what institutions are buying or selling.