OTC, The place where Whales and Banks meet.

OTC (Over the Counter) Trading is a method in which assets are bought and sold via a dealer network. (https://www.investopedia.com/terms/o/otc.asp) In regards to crypto this is important because this market is often overlooked and by certain calculations it may be larger than the conventional trading platform market.

The way this works put simply is there is a buyer and seller located on opposite sides. When one wishes to act they contact the broker or OTC platform and they match the order on the other side. Once the order is met bank accounts can be used as well as cash.

The reason that this market is so large is because this is where the “whales”, Ultra High Net-Worth individuals and institutional investors all meet. Additionally most OTC exchanges have minimums of upwards of $75,000 (ranging from 50,000 to 100,000 USD).

But.. why wouldn't these people just log on to a regular exchange and purchase it there?

1. Fixed Price
2. Security and Privacy
3. Liquidity

Fixed Price: Many orders in OTC markets come from banks, or institutions who want to buy amounts often in the millions of dollars or in the thousands of bitcoins. A single order this size would clear out order books in a way that would mean your average price would vary at the moment of sale or purchase. Additionally the volatility that the entry of such orders would bring to platforms would only add to the price chaos.

Security and Privacy: The history of bitcoin and the blockchain industry is riddled with endless hacks, scams, theft of funds resulting in billions of dollars “lost”. Needless to say anyone investing millions of dollars wishes to keep their funds as safe as possible and keeping your money in exchanges might be the riskiest way. In terms of privacy (no pun intended), both buyers and sellers are usually vetted through KYC’s and neither know the information of the other.

Liquidity: If you were to sell 10,000 bitcoins in any given exchange this might take multiple days to fill. In OTC markets it is understood that both parties have the money or asset at hand to finalize the transaction. In OTC markets depending on the broker and jurisdiction this process would often take a single day. Sites like Kraken even offer to buy your orders on the spot at almost market value.

“Camilo, when you mean big how big is this market” Good question. Let´s take Circle. This is an OTC digital asset trading company which averages about $2 billion a month. Another fun fact is that one of their backers is Goldman Sachs. Granted the size is very hard to determine based on the privacy of the transactions it is an open secret that huge institutional investors are pouring money into this industry.

What is your opinion on OTC markets, are they ethical, have you used them? Leave your comments down below! Thanks

Crypto Lord