Grey Markets or Gray Markets are an informal market where crypto, stocks, bonds, gold, and other assets are sold formally among market participants without direct regulatory oversight.
The markets are mostly used by private equity funds, large investors (whales), and other funds like wealth funds, sovereign funds, and family offices (but not mutual funds). Such markets are characterized by large deals (also called block deals), negotiated prices, intense competition, and several quasi-legal practices like hostile takeovers, etc.
Even though they are attractive, it is always best to do your research before venturing into these markets.
Features
1. Block Deals
Gray markets tend to process deals in blocks, not blockchain blocks, but as in large blocks which means in large lots.
For example, in the sale of World Liberty Financial, Justin Sun invested $30 million into WLFI tokens at a price of 5 cents per coin.
2. Price Negotiations
These markets are marked with intense price negotiations, which sometimes skew the entire tokenomics in favor of one side.
An example of this feature was seen during the Gray Market sale of the WLD token where Alameda Research and FTX Exchange (both now defunct) were able to buy massive amounts of coins. Later, these coins troubled WLD’s price for a long time in 2023 and 2024 pushing WLD down further even when there was nothing severely wrong in its fundamentals.
3. Lower Regulatory Oversight
Since a crypto only comes to the regulator’s oversight during its retail launch, much of the Gray Market deals are beyond its ordinary reach. Further, Gray Market deals are usually very secretive with several non-disclosure agreements between the buyers and the sellers.
All of these make regulatory oversight a little hard to reach them.
Advantages
1. Better Price Discovery
Gray Market participants tend to thoroughly investigate a price before investing in them. Therefore, they often buy at the correct valuations. By the time, these tokens reach the retail markets, they tend to be a bit overvalued giving the early investors the highest amount of profit on listing.
2. Negotiations for Price
Gray Market negotiations allow investors to exploit each and everything about the token and use these data to the best of their ability to bring prices down.
3. Ability to Process Large Deals
Typically, all the large corporate investments in crypto, take place via Gray Markets.
Corporates and other large investors usually prefer gray markets because they can then do background research on the project without having to compete with another investor.
Further, Gray Market prices tend to be fluid and can be affected by negotiations between the project and buyer teams.
For example, Ripple’s first corporate sale worth $700 million took place in a Gray Market.
Disadvantages
1. Less Investor Protection
Typically Gray markets carry a lot of risks because most of the investors and project owners are unknown to each other and meet each other in a completely unregulated marketplace.
Several times these markets were the origin of infamous crypto scams such as the One Coin by Ruja Ignatova.
As a precaution, while investing in any crypto project via a Gray Market, users must ensure that they have fully checked the crypto project through social media, its website, white paper, verified its smart contract code, verified its technology on GitHub, and other relevant places.
Even if a single shard of doubt remains, it could lead to a complete loss of funds.
