What is OTC Trading and Why is It Important?

The trading of bitcoin is not limited to the completion of transactions by novices on major cryptocurrency exchanges. Over-the-counter trading is an essential component of the functioning of the coin market. OTC is an abbreviation for “Over the Counter,” which literally means “beyond the counter” or “bypassing the counter.” Large actors, such as miners, early investors, or entire companies, are the ones who are most responsible for dealing with it.

What Does OTC Trading Stand For?

This is a transaction that takes place directly between two people who have an interest in doing so (without the influence of exchanges).

OTC trading was around for a very long time before the cryptocurrency market was even created. Financiers are able to carry out substantial transactions utilizing a wide variety of trading products including stocks and derivatives with the assistance of this tool. The over-the-counter (OTC) market, in contrast to traditional exchanges, is decentralized and does not have any particular physical locations anywhere in the world. Additionally, there is the possibility of having mediators as well as representatives from both parties.

When a small company’s shares cannot yet be traded on a public exchange, OTC trading can be an extremely helpful alternative in traditional markets. Those who are interested in trading securities do not use stock exchanges but instead conduct transactions directly with one another.

On the cryptocurrency market, persons who want to sell or purchase a large volume of coins frequently engage in over-the-counter (OTC) transactions. For instance, it is quite difficult for a large miner to sell his Bitcoin holdings through the traditional exchanges because of the complexity involved. He can avoid dealing with centralized middlemen by selling the items directly to the second party that is interested in purchasing them.

Analysts from Digital Assets Research and TABB Group have found that the daily volume of over-the-counter (OTC) transactions is significantly higher than the volume of normal trading on exchanges. Because of this, some of the most prominent cryptocurrency exchanges, such as Binance, Coinbase, and Circle, have begun offering brokerage services for over-the-counter (OTC) trades.

Who engages in trading on markets other than stock exchanges?

Large miners are the primary vendors, and they mostly deal with institutional investors when marketing their wares.

OTC platform Cumberland stated in their monthly report for October 2018 that the majority of the company’s work is completed during the Asian trading hours. According to the information provided by industry professionals, this is the time of day when Antpool and BTC.com pools sell off the coins that were mined by their users.

Their customers, who are typically major investors and companies, would conduct trades outside of exchanges. To put it another way, if there are a significant number of bitcoins present, over-the-counter trade will almost certainly take place.

Why do regular users require over-the-counter transactions?

OTC trading is the best option to take if you require a particular quantity of anonymity in addition to a certain level of liquidity.

For instance, you have acquired a sizeable quantity of cryptocurrencies quite a while ago and have been sitting on it ever since. Because of the precipitous increase in the cost of Bitcoin, the value of your savings has risen; hence, in order to make a speedy sale, you require a wealthy purchaser who is able to pay for everything immediately. There are instances when there is not enough liquidity on the exchanges; nonetheless, a significant investor can offer it for the market.

In addition, maintaining one’s privacy is critical in circumstances like this. You will not be able to trade in secret if you place a large order since exchanges will require you to authenticate your identity before they will allow you to place the order.

A final point to consider is that the price of a cryptocurrency on an exchange will be nearly entirely unaffected by the direct selling of that cryptocurrency. The value of the asset will not decrease as a result of a significant transaction, which means that both parties will continue to be profitable.

What is the minimum amount of cryptocurrencies required to engage in over-the-counter deals?

Exorbitant amounts are typically called in by intermediaries who interact with major institutional investors. The bar to entrance is typically lower for less significant businesses.

For instance, in order to use the over-the-counter (OTC) platform offered by Bittrex, customers must have an equivalent of their trades worth more than $250,000. Poloniex is subject to the same restriction. However, Binance likes to keep track of transactions in bitcoins, and transactions on this exchange must be greater than 20 BTC, which is equivalent to almost 219 thousand dollars based on the current exchange rate.

Coinbase provides a specialized premium service called Prime, which is only accessible to a select few institutional investors. Changelly is worth bringing to the attention of smaller clients because the beginning limit here is 10 BTC, which is equivalent to 110 thousand dollars.

Are There Any Issues with Trading Over-the-Counter?

When engaging in a transaction, just like with any other type of company, it is critical to be aware of potential cons ahead of time and to plan accordingly.

After a hack on an exchange, there is a sudden flurry of activity in the over-the-counter market. The goal of the hackers is to withdraw a substantial quantity of the stolen coins. Naturally, everything takes place in complete secrecy.

They might also utilize strategies that involve psychological pressure in order to trick the customer. Scammers have been known to supply bogus information regarding non-existent bitcoins and then disappear with the money that they have been handed in some instances.