Recently, we mentioned how we’re preparing to offer OTC (over-the-counter) trading – the opportunity to exchange tokens and traditional (i.e. FIAT) money between two parties outside of any crypto exchange platforms. In this article, we are going to take a closer look at what OTC trading is, and what advantages it brings.
Many people, especially ones new to the cryptocurrency world, want to buy bitcoins or other virtual currencies, but they don’t really know their options. Both exchange trading and OTC trading are good choices, but they can be more useful to you depending on what type of trader you are. If you just want to get involved in the crypto space with a small amount of money, the exchange is the place to go. However, OTC trading might be for you if you want to pull the trigger with large amounts of money. Now let’s take a closer look at what OTC trading is.
What is over-the-counter trading?
OTC trading takes place directly between two parties, without the intermediation of the exchange. It is a decentralized market, with no central and physical location. OTC trading is executed via OTC brokers, such as for example Octagon Strategy or Genesis Trading. One of the differences between OTC trading and trading on exchanges is that exchanges provide transparency and maintain the current market price, while in OTC trading the price is not necessarily revealed to the public.
Bigger market size
There is a lot of contradictory information about how big OTC market size is – the discrepancy is from 250 million dollars to 30 billion a day! It is worth mentioning that trading market size on cryptocurrency exchanges is around 15 billion USD per day. Bravecoin.com recently announced that daily OTC volumes are three times higher than on cryptocurrency exchanges. It is also worth noting that some crypto exchanges act dishonestly and artificially inflate their volumes.
After all, it is widely believed that OTC trading has significantly larger market size than “traditional” trading. As it turns out recently, it is probable that currently OTC markets exceed crypto exchange volumes and most of the trade in large quantities moved outside the crypto exchanges. Many people also believe that OTC market volumes are much higher than those estimated. It is difficult to estimate the size of this market because many buy/sell offers appear on social media and on groups in programs such as WhatsApp, Telegram, Skype and IRC.
One of the advantages of OTC trading is the lack of limits that are set up crypto exchanges, so it is a good solution for people who want to trade gigantic amounts of cryptocurrencies. Other reasons are greater anonymity, liquidity, eliminating slippage, preventing unwanted price changes and no FIAT integration.
Who are usually the sellers and buyers? Currently, the main buyers are hedge funds, and the main sellers are miners. The regions in which the majority of OTC transactions take place are Asia and North America. However, many people think that OTC trading is only for “big fish”, for example, for institutional investors, and in reality, it is not quite so. If you are not an institutional investor, it doesn’t mean that OTC is not for you; it’s just another option for you to buy and sell digital currencies. If you are not familiar with online exchanges, the whole process is difficult for you, it seems complicated to you, OTC trading can be for you. It may allow you to have more personalized, human experience. In general, OTC creates a very simplified process for an average investor.
OTC trading, which has been in the cryptocurrency market for 10 years, is becoming more and more popular. Already, such large crypto exchanges as Binance and Coinbase open their own OTC desks. This indicates a significant demand among institutional investors for this type of transactions.
It seems that OTC trading may be the future of cryptocurrency trading, although it will probably never completely supersede trading on the crypto exchanges.