How Does OTC Trading Work?
Exchange trading, as its name implies, is trading on specific crypto exchanges: Binance, KuCoin, Kraken, Bitstamp, etc. All transactions are brought to the internal market of the exchange and are reflected in the price chart.
How does OTC trading work? In contrast, over-the-counter trading is the execution of transactions on sites where there is no central authority and where transactions are not reflected on the chart. Simply put, OTC (over-the-counter) trading is the exchange of money for cryptocurrencies between individuals or organizations. In essence, OTC trading is the exchange of cryptocurrencies on aggregator sites where there are two parties: sellers and buyers.
What Is Crypto OTC Trading Platform Legit?
What is OTC crypto trading? OTC trading is divided into 2 subtypes:
p2p sites, that is, sites where sellers register and often provide their data. These sites usually implement an escrow account mechanism, i.e. smart contracts, when after the buyer contacts the seller, the latter transfers the cryptocurrency to the smart contract and actually loses control over it.
After receiving money from the buyer, the smart contract transfers the crypto to the buyer's address. P2p sites can include both web interfaces and Telegram bots.
Both web- and TG-exchangers are crypto OTC trading platforms legit that work according to the same principle: you transfer money to the seller (for example, from a bank card), and he sends you a crypt to your address. Yes, it can be unsafe, as it is easy to run into scammers, however, many exchangers have been operating for more than a year and have earned a good reputation, albeit an unofficial one.
However, p2p platforms with escrow accounts (these are guarantor accounts to which the seller transfers crypto and waits for funds to be received from the buyer. After the buyer transfers the funds, the crypto is sent to the buyer) can be considered a more reliable way to buy crypto. This is facilitated by smart contracts that provide protection to the buyer (if you transfer money, but the seller does not release the crypto from his smart contract to your address, you open a dispute, and the site administration helps you solve the problem).
However, recently even Western large agencies have begun to require supporting documents. So, on localcryptos.com, for example, some sellers (but not all) require you to write your full name and send your photo along with your passport and passphrase. Yes, your documents are not sent to the site administration, but are transferred only to the seller. But it’s still unpleasant, because previously it was possible to buy a crypto without any passports and photographs.
There are still sellers who do not require documents when transferring, and you can make a deal through the same PayPal.
For those long-term investors who don't want to get involved with KYC, crypto OTC trading platforms legit is a viable option. You buy crypto for a long time, and at a long distance commissions of 10% -15% will not matter to you. And no paperwork is needed.
In the over-the-counter crypto market, moneybags, such as early investors in crypto assets, crypto funds, or businessmen with huge capitals in fiat, also make transactions with Bitcoin and other cryptocurrencies, using the services of over-the-counter brokers, directly among themselves, and not on exchange platforms.
Large transactions can instantly affect the price of realizable assets if they are made in front of an astonished public, and are also accompanied by very substantial commissions when it comes to really large amounts.
OTC is of interest not only to small investors seeking to remain anonymous, but also to large “whales”, for the following reasons:
The fact is that while the volume of trading on crypto-exchanges is small, and companies with large amounts that buy crypto will definitely cause a change in quotes. It’s always like this on exchanges: if a one-time large buy position is opened, this leads to a price increase.
This is not profitable for traders-whales, because they want to buy cheap. Each purchase of a larger amount will somehow move the price up, and the next purchase of the company will have to be made at a higher price.
Therefore, large players tend to buy on the over-the-counter market so that their transactions are not reflected at all on the currency charts. Often they do this gradually, in several tranches, over several days, since OTC trading in large volumes involves one or more sellers holding large amounts of currency.
Trade sizes in the OTC market typically start from $70,000 to $300,000, but can reach hundreds of millions in certain cases.
What Impact Does the OTC Market Have on Cryptocurrency Rates?
Given the fact that OTC trading takes place away from prying eyes, it should not affect the price of Bitcoin, but this is only theoretical. However, oftentimes if there is a large buyer (or seller) who requests a large OTC trade, word of this can (and most of the time it does) go to the general public and prices on the exchanges start to jump to such news.
For example, if one of the major early investors in cryptocurrencies wants to “cash out” (withdraw to fiat) some of their assets – say, 10,000 BTC (approximately $70 million in today’s crypto market) and consults with several over-the-counter brokers in this regard in order to find a suitable applications, crypto-investors active both on the over-the-counter crypto market and on exchanges may eventually start selling their assets on exchanges in anticipation of a large growth in the seller’s trade, and if such information penetrates the general public, the asset price falls.
Thus, the OTC crypto market is a good source of information for crypto investors. Since exchanges mainly serve retail traders with relatively small capitals, it is logical to assume that the real manipulator of the Bitcoin price is the over-the-counter cryptocurrency market, where large investors make transactions worth hundreds of millions of US dollars.
How Does OTC Crypto Market Affect the Bitcoin ETF Issue?
The principal reason why the US Securities Commission (SEC) still does not approve, and in some cases refuses to launch Bitcoin ETF, is the lack of proper legislative regulation of the crypto industry, which can lead to a number of uncontrollable problems if such an initiative is approved by financial institutions. regulators – possible manipulations in the market, fraud, money laundering, tax evasion, etc.
But if exchanges have elementary KYC/AML procedures, there are a number of rules for using platform services, there are security systems, and there are obligations taken by the management of the platforms to protect user funds, then the OTC market cannot provide absolutely no guarantees to crypto investors due to absolute anonymity and the absence of at least any oversight by regulators.
Or, for example, a crypto investor turns to several OTC brokers in search of a bid for a large number of Bitcoins to be sold, but at the same time has no intention of realizing his coins. However, a large sell request lowers the price of Bitcoin, after which this investor can make the desired trade at an artificially low price on crypto exchanges.
Therefore, if Bitcoin trading continues to move more towards over-the-counter trading rather than regulated markets, this could become an obstacle to the approval of the long-awaited Bitcoin ETFs.
Many analysts argue that over-the-counter cryptocurrency trading cannot in any way affect the rate of Bitcoin and altcoins, however, it is more logical to assume that the huge flows of Bitcoins “floating” past exchanges cannot but affect the rates of digital currencies.
OTC Trading Advantages and Disadvantages.
Pros of Over-the-Counter Cryptocurrency Trading
Ability to conduct large transactions. OTC platforms offer users enough liquidity to handle large amounts.
You can save. The over-the-counter market has more attractive prices. You can also save money due to the absence of exchange commissions, which can reach several percent of the transaction amount.
It is possible to maintain confidentiality. Some OTC platforms offer anonymous transactions without entering trade data into trading books.
Price stability. On exchanges, it is not always possible to sell or buy a large amount of coins at a single cost due to the lack of counter offers from buyers and sellers. As a result, the amount has to be split into several small transactions, instead of one large one. In the process, the price of an asset can change significantly. Finally, the result of the operation, with a potential high probability, will differ from the expected.
Independence from stock exchanges. During times of high market volatility, many large platforms often experience technical difficulties and go offline. Such a trading platform may unexpectedly be unavailable for technical reasons. OTC platforms are stable.
Over-the-counter trading in cryptocurrencies may be of interest to users who need to buy or sell a large amount of assets at a time at a bargain price.
With the growing interest of market participants in OTC trading, many proposals for organizing work from popular projects that have earned the trust of users have appeared on the network. As a result, the security level of over-the-counter trading in cryptocurrencies has increased.
Cons of OTC Cryptocurrency Trading
Increased level of risk. It can be avoided by choosing a trusted broker.
A small selection of cryptocurrencies. Most OTC platforms are focused on working only with the most popular coins, including the leaders in capitalization – Bitcoin and Ethereum.
Operating conditions on OTC platforms can vary significantly. The difference in rules can reveal alternative advantages and disadvantages, as well as hide some of the pros and cons of OTC platforms.