For most people looking to buy or sell crypto, a regular exchange is the first and best option. These provide clear pricing, transparent order books, and the ability to buy at spot or to set a limit order.
For larger buyers and sellers, however, exchanges often aren’t a good option. Buying or selling a large volume of assets can cause slippage, meaning the trader doesn’t get the best price. High net-worth individuals (HNWIs) might not be happy using an exchange’s public order books, either, and telegraphing their intentions to the world.
That’s where the OTC markets come in.
What are OTC markets?
Over-The-Counter or ‘OTC’ markets exist in the conventional financial sector as well as crypto, and are a way for two individuals to make a private trade, typically for a large amount of an asset. The two parties negotiate the price between them, which may be based on the market price seen on exchanges, but can feature a discount or premium depending on market conditions. The trade is completed and the funds transferred without any part of the process requiring third-party infrastructure like an exchange.
OTC in the crypto markets
Because the crypto markets are relatively thinly-traded (i.e. liquidity is poor) compared to other asset classes, and because many popular exchanges are unregulated or cannot legally be accessed by investors in certain jurisdictions, OTC trades have become a popular way to buy and sell significant amounts of crypto. This may involve making an arrangement directly with a large miner or an early adopter.
While it’s possible to organise a trade directly between two individuals or organisations, there are reasons why this is not a common practice. OTC Desks facilitate the process of matching buyers and sellers, insulating both parties from having contact with the other to preserve privacy. They also handle the exchange of funds to avoid problems of trusting an unknown party – especially where crypto is involved. OTC deals can either exchange crypto for fiat (e.g. bitcoin for USD) or crypto for crypto (e.g. BTC for ETH).
Who uses crypto OTC Desks?
With the growth of the crypto sector, OTC Desks have become the preferred choice for a variety of large traders:
- Financial institutions
- Anyone seeking to preserve privacy while making larger trades
How does the TimeX OTC Service work?
TimeX’s OTC Desk allows individuals and organisations to make larger buys and sells of crypto (minimum AUD $25,000 equivalent) without impacting exchange prices. Users are required to submit identity documents to TimeX for verification. Trades are organised on an individual basis, depending on specific circumstances. The OTC Desk can either seek to provide a counterparty for a trade, or can simply facilitate an exchange between two parties who have already agreed terms. Details can be discussed by emailing [email protected].
For more information, visit Timex.io/OTC