I could probably write an entire book on the subject but here is a short answer.
If you go back and look at a 20 year chart for the DOW, you will see that market volume started to increase around 1999. That is also about the same time that the internet became fairly mainstream. From that point forward market volume has grown at a far more rapid pace than it had years previously.
Before the internet, there really was no such thing as a "day trader". The only traders were the floor traders and market participants. Investors read publications such as the wall street journal and understood the markets. They normally would work in tandem with a knowledgeable broker. This all but vanished when the internet came about.
The internet injected billions of dollars into the market by opening up the door to every day Joe who could trade stocks just like the floor traders. This helped fuel the Dot.com bubble.. which eventually popped due to excess. Company's traded fat above their real value as amateur speculators/traders drove the prices up.
Pretty much the same thing happened with the current problems. Though the core of the problem was simply corporate greed, to much risk and leverage, the market however was liquid enough to make it happen.
Since our main point of interest is the OTC.. I will also give my opinions on why the OTC has not benefited as a result of this influx of bad traders.
Think of it like this, when some pinksheet company proclaims it is going to make Millions selling a widget, but its web site is nothing more than a Godaddy template that was created just a few weeks prior. Its officers/directors (which can be obtained by checking with the State SOS) are all known previous promoters or have had run ins with the SEC. Why on earth do people trade it? It only takes someone with half a brain 10 minuets to figure out when one of these boiler room jobs is what it is... why do folks trade it?
I'll tell you why... GREED!
There are many good traders on Ihub, I even know some of them personally. But when you see someone say "Who cares if it is a scam, it is making me money". That is the EXACT reason we are in this whole mess. Most of these boiler room scams wouldn't exist if it were not for the multitude of people who don't know what they are doing were in the market.
