Crypto OTC trading: Pros and cons when coins are scarce
What is over-the-counter trading
In recent months, the over-the-counter (OTC) trading market has reached its peak. Donald Trump’s victory in the U.S. presidential election has spurred investor interest in cryptocurrencies, and they are now using every opportunity to replenish their digital reserves.
How cryptocurrency is usually purchased
There are many ways to purchase cryptocurrency. The simplest and most common method is through cryptocurrency exchanges, where users trade coins with each other at market prices. However, this trading occurs within a centralized platform, which may not suit everyone. Many people are reluctant to entrust their assets to exchanges due to the ever-present risk of hacking.
Another popular method is using crypto exchange services, which function similarly to traditional currency exchange offices. These are often physical locations where digital assets can be bought or sold anonymously. Many such services are also available online.
Peer-to-peer (P2P) platforms are another option, allowing direct transactions between individuals, where buyers and sellers can negotiate the terms of the deal. P2P trading can also occur without the involvement of decentralized services.
In many countries, crypto ATMs are widely used. These machines, similar to bank ATMs, allow users to quickly buy or sell cryptocurrency. They are typically located in busy areas like shopping malls.
However, none of these methods are ideal for handling large volumes of cryptocurrency. In such cases, OTC trading comes to the rescue.
What is over-the-counter trading?
Over-the-counter (OTC) trading involves the direct buying or selling of cryptocurrencies between parties without the involvement of a centralized exchange. OTC transactions are conducted through specialized platforms or brokers and are often carried out privately, allowing buyers and sellers to negotiate terms such as price, volume, and other transaction conditions.
The main advantage of OTC trading is the ability to execute large transactions with minimal impact on the market price of the asset. This "invisibility" makes it a favored tool among institutional investors, hedge funds, and even governments. OTC trading also allows users to bypass restrictions like exchange-imposed limits (enabling the purchase of almost any amount) and regulatory barriers (with no government body interfering in the transaction).
However, OTC trading has its downsides. A lack of transparency and centralized guarantees increases the risk of fraud, especially for inexperienced participants. Such transactions require trust between the parties or the broker, which can be problematic if the broker or platform is unreliable. Additionally, organizing OTC transactions is more complex than using exchanges and requires more time and resources, making them less accessible to retail investors.
The growing popularity of OTC trading
The end of 2024 has been a successful period for cryptocurrencies. Bitcoin’s price surpassed $100,000 for the first time, and Donald Trump, a cryptocurrency-friendly leader, was elected President of the United States. These events fueled a surge in demand for cryptocurrencies, causing a significant increase in trading volumes and a historic low of 2.3 million bitcoins held on cryptocurrency exchanges.
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Due to the lack of bitcoins available on exchanges for large companies, the turnover on OTC platforms has multiplied. For example, OTC trading volumes on Kraken have increased by 220% compared to the previous year, with similar growth reported by other major platforms, according to The Block.
“The OTC market is simply boiling right now. Prices have risen, but so have volumes,” said Tim Ogilvie, Head of Institutional Sales at Kraken.
Ogilvie and other market participants also noted that large investors are not limited to Bitcoin. They are purchasing substantial amounts of Ethereum, Solana, BNB, TRON, Aave, and other assets. Investors remain confident in the future success of products like spot Bitcoin ETFs and Ethereum ETFs, while eagerly anticipating similar funds for altcoins.
Conclusion
The cryptocurrency market has been experiencing a boom for several months. More individuals and companies are looking to acquire digital assets, but there aren’t enough coins to meet the demand. Against this backdrop, OTC trading is becoming increasingly popular as it simplifies large-scale cryptocurrency purchases and sales.
OTC trading allows for significant transactions to be conducted anonymously, minimizing market impact and bypassing regulatory restrictions. This makes it particularly appealing to institutional players and companies seeking confidentiality.
However, OTC trading also comes with drawbacks. A lack of transparency and centralized guarantees increases the risk of fraud, while the complexity of transactions makes this tool less accessible to retail investors. Despite these disadvantages, the OTC market remains an essential component of the cryptocurrency ecosystem, particularly during periods of heightened market activity.
