Over-the-Counter (OTC) cryptocurrency markets have seen a massive surge in trading volume as brokers compete to bring in institutional funds entering the crypto markets. The OTC Bitcoin market operates similarly to the global financial OTC markets. Many established crypto exchanges have launched their own OTC trading desks to take advantage of the increased demand from retail and institutional investors.
So what does this mean? The increase of OTC trading desks is perfect for traders who want to purchase a large amount of cryptocurrency with low slippage, and without the risks of buying coins and tokens through traditional exchanges. If you’re a trader who’s ready to buy cryptocurrency in bulk, you are likely considering OTC crypto. Let’s look at how OTC works and what to look out for when you decide it’s a suitable investment for you.
What Is OTC?
Crypto OTC is the trading of crypto assets directly between two parties. For example, a trade can be crypto-to-crypto, such as swapping Bitcoin with Ether. A transaction always happens between a dedicated “trading desk” and an individual or institution. The individual or institution is also referred to as the counterparty.
Trading crypto OTC is no different than trading stocks or other financial assets, and investors enter into a bilateral contract — meaning the deal is done directly between the two parties. The leading players in OTC markets are institutional investors, hedge funds, professional high-volume traders, and family offices. They usually have a large capital base and trade a minimum of $25,000 to $75,000 worth of assets. OTC brokers generally set these limits for trading.
By nature, OTC is a private and custom service, and traders maintain a network of investors and sellers. Larger OTC organisations maintain an inventory of cryptocurrencies to meet demand at any time. OTC traders stay up-to-date on buyers, sellers, and the best times to execute a transaction.
How Does OTC Trading Work?
OTC trading is relatively straightforward. First, you need to find a counterparty for the trade. This is done via chat or done through an OTC brokering platform. Once you are ready to trade, you and the counterparty negotiate the terms. For example, if you’re purchasing BTC, you may specify the following:
- The amount of BTC you want to buy
- When the trade will take place
- The desired price for the trade
Once the negotiation is complete, and both parties agree, a transfer of funds from the buyer to the seller is initiated. This consists of the purchase price and the appropriate amount of coins or tokens. To satisfy legal requirements, a KYC (Know Your Customer) due diligence may be completed by both parties.
What Are OTC Desks?
OTC Desks conduct OTC trades with clients. Instead of matching buyers with sellers, an OTC desk acts as a dealer for anyone looking to trade an asset. These desks are generally used when a trade is not otherwise possible on crypto exchanges. This may be because the asset doesn’t trade on the exchange or if an order is large enough to limit market impact and slippage (the difference between the expected and actual executed price of a trade). To minimize the risk, OTC desks may provide a “lock-in price” for a specified period of time.
Each OTC Desk has its own aggregated order book that connects multiple liquidity providers to trade large amounts of assets without moving the markets. OTC Desks potentially save clients money by providing a better price than the blended average available in other exchanges’ order books. The types of crypto that OTC Desks focus on are:
Digital Currencies like:
- Bitcoin Cash
Fiat Currencies like:
- US Dollars
- Canadian Dollars
- Japanese Yen
- British Pounds
- Swiss Francs
- Australian Dollars
The Advantages of OTC Trading
Let’s take a look at some of the benefits of trading crypto over-the-counter:
- OTC is designed for large-scale trades for high-net-worth individuals or institutions
- Avoid slippage and access liquidity at a better price
- Minimise hacking risks with traditional cryptocurrency exchanges
- A trusted broker is used to conduct trades
- Faster settlement of large trades and quick access to funds
Finding A Trusted Broker
Founded in 2020, Aus Merchant is helping to remodel the traditional financial ecosystem and move it into the world of digital currency. Our services cover banking, trading, and financial services with innovative tools like our wealth management portal. We also offer integrated crypto payment solutions and accounting platforms for merchants. Our approach for investors is tailor-made to their needs.
Aus Merchant provides access and analysis of multiple crypto exchanges and provides our clients with the right currencies at the right price. As digital currencies continue to be adopted and disrupt traditional financial markets, Aus Merchant is at the forefront of this transformation, supporting both investors and merchants to adapt to the future of money. Reach out to us today and meet your new broker!