Most exchanges maintain a central limit order book that keeps all transactions under a certain size, restricting trades to reflect the demand for the particular currency at the time. These limitations are there to prevent retail traders reacting to false signals of market movements that larger trades would create.
Block trading is utilized to overcome these restrictions, with larger trades that exceed the limitations being settled privately between the involved parties. A post on the Gemini blog lays out the conditions necessary for block trades to take place on the platform: “Any customer can place a block order that specifies: (i) buy or sell, (ii) quantity, (iii) minimum required fill quantity, and (iv) a price limit (the “Indication of Interest”)”.
The block trading orders will take place outside of Gemini’s continuous order books, with the pending transaction only successful if “a market maker agrees to “make a market” that satisfies the Indication of Interest”. There is a minimum investment of 10 BTC or 100 ETH to participate in block trades.
Gemini’s block trading service will go live on 12 April at 9.30am (EST). The exchange platform aims to publish confirmed trade information on its data feed within 10 minutes of being finalized. Block trading has the potential to reduce market volatility caused by cryptocurrency “whales” (the term given to large-volume traders) selling off large portions of their assets.
A recent substantial sell-off by a trader using the handle Mt. Gox, is reported to have influenced Bitcoin’s recent crash that reached nearly USD 6,000. Other platforms have already adopted block trading, most notably gaining popularity in Asian-based exchanges. Circle Trade is one such platform already utilizing block trading, with its website citing it is currently moving USD 2 billion a month.
Block trading companies have recently gained massive popularity in Asian trading hubs such as Hong Kong and also in Australia. With significant financial players including the Rothschilds, the Rockefellers and George Soros entering the cryptocurrency market, block trading is going to be a necessary adoption for all platforms looking to cater to these investors.