Why should I trade Over The Counter (OTC)? In Hong Kong, there are a number of ways by which one can buy and sell crypto-assets; through an online exchange like (www.gatecoin.com), ATM’s (click here for list), person-to-person trading via www.localbitcoins.com, and over-the-counter (OTC) at Genesis Block.
OTC is essentially trading crypto-assets offline, away from the public eye, via a private messaging channel between two counterparties. There is a minimum trade amount, for example US$25,000, this will vary for each OTC operator. This is beneficial for investors in Asia for a number of reasons.
Know Your Customer (KYC)
OTC operators, as with other types of exchanges, must conduct know-your-customer (KYC) procedures, and conform to anti-money laundering guidelines for new accounts. This means collecting data and documents from the applicant, including a valid proof of ID and valid proof of address.
This has two main benefits. Firstly, it assures the public that the OTC is running legitimately and in a proper manner. This plays a role in protecting the OTC from investigation by governments and financial authorities. These organisations actively seek to detect and prohibit fraudulent transactions. Christine Lagarde, Managing Director of the International Monetary Fund wrote in her blog in April, “before crypto-assets can transform financial activity in a meaningful and lasting way, they must earn the confidence and support of consumers and authorities.”
Among the biggest appeals of OTC is the price competitiveness when comparing it with using an ATM or online exchange. ATM’s are great to acquire crypto instantly without KYC. However, the higher fees means it will be costly for large orders. Online exchanges are public and offer a whole range of ‘alt’ coins to trade within the platform’s orderbook. On the flipside, often there is not enough depth in the orderbook to fulfil large orders without causing an upward spike in price for a buy order. Or a downward trend for a sell order, which is not ideal for the large investor. “Naturally, someone making a large buy order would not want to drive up the price of an asset because of the increase in demand that they themselves are creating at an exchange with limited liquidity.”
Add onto that the fact that OTC happens offline. Therefore nobody knows that a client has just bought $1 million worth of Bitcoin. In wake of all the fraudulent and hacking activity, it’s good to conduct your trade secretly away from the orderbooks.
With regard to security, OTC is often more secure than public exchanges. This is because the customers’ crypto-assets are not in possession by the OTC operator. Once the trade has been executed, the coins are sent to the buyer within two days (or even same-day, if requested by the client). The wallets that are used by OTC traders are also cold, multi-signature wallets, which require more than one person to authorise a transaction, and are significantly less vulnerable to hackers than hot wallets used by traditional exchanges.
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