All You Need to Know About OTC Crypto Trading

One trading avenue, often cloaked in a shroud of mystery for the average investor, is OTC (Over-the-Counter) crypto trading.

How do big-time investors buy and sell mountains of crypto without messing up the price on exchanges? That’s where OTC trading comes in! It’s like buying a house directly from the owner, instead of going through a crowded marketplace.

Instead of placing a market order on a CEX, you chat with a middleman (called an OTC desk) who connects you with another big spender (or seller) and helps you agree on a price. This way, your big purchase doesn’t affect the regular market price for everyone else.

This comprehensive guide will explain OTC trading and, equip you with the knowledge to decide if it’s the right fit for your crypto trades.

All You Need to Know About OTC Crypto Trading

What is OTC Crypto Trading?

OTC crypto trading is a crypto trade where deals are struck directly between two parties, facilitated by a professional intermediary known as an OTC desk. Unlike public exchanges with their order books and constant price fluctuations, OTC trades are negotiated one-on-one, offering a more customized and discreet experience.

Key Stats:

Average OTC trade size: $100,000+ (far exceeding typical exchange volumes)
Estimated OTC market share: Between 10% and 50% of total crypto trading volume

Benefits of OTC Crypto Trading:

Privacy: Transactions remain confidential, shielding your activity from prying eyes and potential market manipulation.
Liquidity: OTC desks cater to large-volume trades, ensuring smoother execution without significant price impact.
Tailored Service: Unlike the one-size-fits-all approach of exchanges, OTC desks offer personalized guidance and support throughout the trading process.
Faster Settlement: Transactions can be settled swiftly, bypassing the delays sometimes encountered on exchanges.

Top 10 Considerations Before Diving into OTC Crypto Trading:

Minimum Investment: Be prepared for hefty minimums. Most OTC desks cater to high-net-worth individuals and institutional investors, with entry points often exceeding $100,000.
Counterparty Risk: Since you’re dealing directly with another party, thorough due diligence on the OTC desk’s reputation and track record is paramount.
Fees: Expect fees beyond the standard exchange rates. OTC desks charge commissions for facilitating the trade, often a percentage of the transaction value.
Regulation: OTC markets operate in a less regulated space compared to exchanges. Stay informed about evolving regulations in your jurisdiction.
Limited Investment Options: The selection of tradable assets on OTC desks might be narrower compared to extensive exchange listings.
Price Discovery: Negotiating a fair price requires a strong understanding of market dynamics and the ability to assess quotes effectively.
Tax Implications: Crypto tax regulations can be complex, especially for OTC trades. Consult a qualified tax professional for guidance.
Security: While OTC desks prioritize security, remain vigilant about protecting your assets during the transfer process.
Technology Integration: Ensure the OTC desk offers a user-friendly platform for order placement, communication, and trade execution.
Exit Strategy: Clearly define your exit strategy before entering an OTC trade. Liquidity in the OTC market might be lower compared to exchanges.

How to Get Started with OTC Crypto Trading:

Research and Select a Reputable OTC Desk: Look for a desk with a proven track record, regulatory compliance, and a strong focus on security.
Establish Communication: Initiate contact with the OTC desk to discuss your investment goals and preferred assets.
Negotiate Terms: Discuss pricing, fees, settlement methods, and any other relevant terms with the counterparty.
Execute the Trade: Once terms are agreed upon, the OTC desk will facilitate the secure transfer of assets and funds.
Maintain Records: Meticulously document all aspects of the trade for tax and compliance purposes.

Top OTC Crypto Desks:

Here’s a breakdown of the top OTC Crypto Desks:

1. Coinbase Prime (Launched OTC in 2016):

Known for: User-friendly platform, strong institutional backing.
Possible Requirements: KYC/AML verification, high net worth status.
Process (Generally): Account creation, discuss trade details, negotiate terms, secure transfer of funds and crypto.
Rules: Compliance with regulations, adherence to anti-money laundering (AML) and Know Your Customer (KYC) standards.

2. Kraken OTC (Launched OTC in 2018):

Known for: Deep liquidity, focus on security and privacy.
Possible Requirements: Account setup, proof of funds.
Process (Generally): Contact desk, discuss trade details, negotiate terms, secure transfer.
Rules: Similar to Coinbase Prime, with a focus on secure transactions.

3. Gemini Custody (Launched OTC in 2014):

Known for: Strong focus on security, insurance-backed custody solutions.
Possible Requirements: Account creation, and verification procedures.
Process (Generally): Similar to Coinbase Prime and Kraken OTC.
Rules: Adherence to regulations, focus on secure asset custody.

4. Bitfinex OTC (Launched OTC in 2014):

Known for: High liquidity, caters to experienced traders.
Possible Requirements: Account setup, and verification procedures.
Process (Generally): Similar to other desks, with a focus on professional clientele.
Rules: KYC/AML compliance, and adherence to relevant regulations.

5. Genesis Global Trading (Launched OTC in 2017):

Known for: Expertise in institutional crypto trading, and extensive product offerings.
Possible Requirements: High net worth status, proof of funds.
Process (Generally): Contact desk, discuss trade details, negotiate terms, execute trade.
Rules: KYC/AML compliance, adherence to regulatory frameworks.

These OTC desks cater to high-net-worth individuals and institutional investors, with minimum investment requirements often starting at $100,000 or more. They offer a high level of service, security, and discretion, and can help investors execute large trades without affecting market prices.

Here are some of the factors to consider when choosing a crypto OTC desk:

Reputation: Choose an OTC desk with a strong reputation for security, compliance, and customer service.
Experience: Look for an OTC desk with a team of experienced professionals who have a deep understanding of the cryptocurrency market.
Liquidity: Make sure the OTC desk has access to a large pool of liquidity so that you can execute your trades quickly and efficiently.
Fees: Compare the fees charged by different OTC desks before making a decision.
Minimum investment: Be aware of the minimum investment required to trade with an OTC desk.
Regulation: Choose an OTC desk that is compliant with all applicable regulations.

Recent News Shaping the OTC Crypto Landscape:

Here are some recent developments in OTC crypto trading:

Institutional Adoption: A growing number of institutional investors, such as hedge funds and asset managers, are turning to OTC desks for their crypto allocations. This trend is expected to continue, boosting overall OTC market volume.
Regulation on the Horizon: Regulatory bodies are increasingly scrutinizing the OTC market, aiming to establish clearer guidelines to ensure transparency and prevent potential misuse.
Technological Advancements: New technologies such as blockchain-based escrow services are being explored to streamline OTC transactions and enhance security.

Conclusion

OTC crypto trading is a great option for big-time investors who want privacy, smooth sailing, and special treatment. But for regular folks, a regular exchange might be just fine. Just remember, with great crypto power, comes great responsibility (and maybe a bigger tax bill!).

Personal Note From MEXC Team

Check out our MEXC trading page and find out what we have to offer! There are also a ton of interesting articles to get you up to speed with the crypto world. Lastly, join our MEXC Creators project and share your opinion about everything crypto! Happy trading! Learn about interoperability now!

Join MEXC and Start Trading Today!