Over-The-Counter or OTC Trading in the context of Bitcoin and crypto, are private deals for buying or selling crypto. Because these transactions are not conducted on regular exchanges, there is no public order book. This provides increased privacy for both buyers and sellers.
The biggest appeal for OTC users is the privacy and low impact it has on market prices. OTC caters to ‘Whales’ who are looking to buy or sell large amounts of cryptocurrency. If these ‘Whales’ chose to purchase a large sum of crypto on an exchange, their transaction would be heavily impacted by slippage. This makes OTC trading a desirable option for high net worth individuals looking to make large trades.
The estimate is that more than half of all crypto trades happen privately. Moreover, some estimate that the volume of Crypto traded OTC is two to three times larger than regular exchanges.
OTC is by nature an intimate and bespoke service. OTC Traders maintain a network of crypto investors and crypto sellers. Additionally, larger OTC organizations maintain an inventory of various crypto currencies to meet their projected demand at any given time.
OTC Traders are constantly up to date on who’s buying, selling, and the best time to conduct a given transaction. Once a buy or sell order arrives, the broker will procure the crypto or fiat necessary to execute the transaction.
Using OTC can take time, and works best when there is a high degree of trust. Namely, traits of a trustworthy OTC derive from the accountability they hold themselves and the parties using their services to. Most notably, the Know-Your-Customer (KYC) form, and the amount of information they ask in this document from their customers. Being able to prove your identity, funds, and source of your funds helps to protect people in the OTC network. The KYC form is a fundamental way for OTC organizations to ensure the funds being sent and received are legitimate. This validates both having the necessary funds as well as the source of the funds.
In most cases OTC Desks will take a position and execute the transaction for you. That means you confirm the amount to buy/sell and they’ll execute the transaction immediately (like at Genesis Block). However, some OTC deals involve matching buyers with sellers. These situations make trust and execution difficult. The buyer and sellers are often separated by hundreds of miles and possibly have language barriers.
We always recommend meeting the people you’re buying and selling to (ideally in person) as a pressure gauge for trust. If the people are honest, transparent, and willing to disclose any necessary documentation. That’s normally a great sign that you are in the right place. With high value trading, it’s important to always feel comfortable with the people who’ll be sending and receiving your funds.
If you would like to know more, here is an article on why you should trade Over The Counter.
Bitcoin Rallies Towards 12k! Last week I had a prediction that it was too early for whales to squeeze the LONGs. I was wrong, and
BTC showing a lot more volatility since the run up to 11k. Bears have tried to squeeze downwards on a few occasions this week but