Crypto Boom, Retail Investors Fuel Rise in Over-the-Counter Stock Trading

A unusual nook of the U.S. inventory market dwelling to hashish sellers, cryptocurrency trusts and different speculative investments is seeing file ranges of exercise.

Buying and selling quantity in over-the-counter shares, which aren’t listed on exchanges, has surpassed $548 billion to this point this 12 months. That’s already greater than the overall quantity for all 2020, in keeping with

OTC Markets Group,

OTCM 0.90%

the corporate that operates the primary market for such securities.

An enormous issue behind the surge is the bull market for digital currencies. The preferred OTC safety this 12 months when it comes to worth traded has been the

Grayscale Bitcoin Trust,

GBTC 9.87%

which trades underneath the ticker GBTC. The belief is a well-liked method for traders to guess on the worth of bitcoin with out holding precise models of the cryptocurrency.

Like the standard inventory market, the OTC markets have seen an inflow of particular person traders for the reason that begin of the Covid-19 pandemic. Such traders are sometimes drawn to penny shares, or low-cost shares of firms too small to record on an alternate. One discussion board dedicated to penny shares on Reddit has 1.8 million members.

Penny shares are dangerous and have a historical past of being vulnerable to manipulation schemes. However lovers say they will repay for traders keen to do analysis and discover alternatives in undervalued firms.

Doug Bober,

a 57-year-old retailer supervisor in Los Angeles, started buying and selling shares two years in the past to construct up his retirement financial savings. Most of his portfolio is now in penny shares, equivalent to

Solar Integrated Roofing Corp.

SIRC 0.97%

, a California-based firm that installs photo voltaic panels on the rooftops of houses and companies.

“Certain, I can play a blue chip. But when I purchase a blue chip, I’ve to place down some huge cash and wait for a very long time” to get a considerable return, Mr. Bober stated. “With a penny, in case you discover a good, strong firm, the upside is phenomenal.”

Mr. Bober says his penny-stock investing has been worthwhile, however he provides that individuals who can’t abdomen the chance ought to keep away. “It’s not a lot completely different from going to Las Vegas,” he stated. “You possibly can lose some huge cash.”

A number of research have discovered that traders are likely to lose cash on penny shares. From July 2011 to October 2020, the typical annualized return of OTC shares of U.S. firms was -44%, in keeping with calculations by

Sihan Zhang,

a doctoral pupil on the College of Alberta.

Such figures exclude the most important chunk of right this moment’s OTC securities: worldwide shares. Many international firms have shares or American depositary receipts that commerce over-the-counter, together with respected corporations equivalent to

Tencent Holdings Ltd.

TCEHY -1.59%


Nestlé SA,

NSRGY 0.23%

Nintendo Co.


Roche Holding AG

RHHBY 2.60%


The OTC markets are additionally dwelling to the securities of some riskier international firms, equivalent to indebted property developer

China Evergrande Group


Luckin Coffee Inc.,

LKNCY 1.50%

the Chinese language espresso chain delisted by Nasdaq final 12 months within the wake of an accounting-fraud scandal.

International firms can use the OTC markets to achieve entry to U.S. traders while not having to adjust to American accounting and financial-reporting guidelines which may be redundant with the laws of their dwelling international locations. In addition they lower your expenses on alternate itemizing charges. In all, of the roughly 11,500 securities traded over-the-counter, about three-quarters are from worldwide firms.

“We’ve created a market within the U.S. to commerce world securities,” stated

Cromwell Coulson,

chief government of OTC Markets Group. “It’s primarily worldwide securities which can be driving our greenback volumes.”

The Securities and Trade Fee has sought to wash up abuses of penny shares. Final week, an SEC rule change took effect that largely prohibits brokerage corporations from quoting costs for OTC shares except the businesses issuing these shares publish up-to-date monetary data.

Because of the rule change, brokerages equivalent to Constancy Investments and

Charles Schwab Corp.

imposed restrictions on shopping for such shares. Near 1,400 securities had been affected at Constancy, in keeping with an organization spokeswoman.

The SEC’s transfer was aimed toward combating fraudulent schemes involving the shares of firms which have gone “darkish,” or develop into delinquent in reporting their financials. In some instances, such firms successfully turned empty shells whose shares had been hijacked by swindlers that tried to govern the worth of the inventory.

Write to Alexander Osipovich at

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