Over-the-counter (OTC) cryptocurrency market moves hundreds of millions of dollars of coins on a daily basis, mostly via the online messaging and video platform Skype.

What is OTC Trading?

OTC trades are not made in regular exchanges. Imagine if a billionaire wanted to put 1 percent of their net worth into crypto. A typical exchange would struggle to handle it. Now imagine 10 billionaires and multimillionaires all trying together. That dog simply wouldn’t hunt.

 

What happens instead is they opt for OTC and the right intermediary. They find a guy who knows a guy. The second guy is willing to sell a few million worth of bitcoin, but his price is going to be higher than what’s happening on the exchanges. This doesn’t faze the billionaire, though, because they’ve got money to burn.

The trade goes ahead, outside the regular market so the volume activity doesn’t show up on an exchange.

OTC trades are not reported and independently audited, but some dealers said their desks often handle more than $100 million of cryptocurrency trades daily with minimum ticket sizes between $75,000 and $250,000.

OTC trading may appeal to those wary of stashing coins and fiat currency with digital exchanges after high-profile hacks and other issues.

So who are the ‘guys’ (or stakeholders) in these OTC transactions?

Typically they are hedge funds, private wealth managers, high net worth individuals and family offices.

OTC via Skype

OTC is done mostly via the online messaging and video platform Skype, participants told Reuters. The participants who spoke with the news giant include traders who work at Chicago-based Cumberland Mining, Goldman Sachs-backed Circle, and New York-based broker-dealer Genesis Global Trading.

“Generally, you would go trade through an OTC desk when you have a large block trade you want to do without moving the market too much or incurring too much slippage,” said Kevin Zhou, founder of cryptocurrency-focused hedge fund Galois Capital.

“When the big [exchange] hacks happen we tend to see business go up,” said an OTC trader who asked to remain anonymous.

Volume Spike

Genesis on average handles $75 million to $80 million in trades daily, 10 times year-ago volumes, Chief Executive Michael Moro said, and in December hit record monthly volume between $1.5 billion and $2 billion.

Boston-based Circle handled up to $4 billion in OTC trades monthly over the past year, spokeswoman Jennifer Hanley said.

Cumberland has been adding employees and opening offices across Asia and Europe, according to Global Head of Trading Bobby Cho.

Types of Bitcoin OTC

 

The Bitcoin OTC trading providers can be categorized into 3 groups: online P2P, online B2C and offline trading.

 

a. Online P2P trade

Online P2P Trade aims at offering Bitcoin buyers and sellers a platform to exchange information. Similar to the “Taobao” model, both buyers and sellers need to first publish Buy or Sell information on the platform. When the buyer enters the amount of Bitcoin he wishes to buy, the platform will freeze the corresponding amount of Bitcoin from the seller’s balance, followed by the payment through a mutually-agreed payment method. Acting as a middleman, the P2P platform will charge a certain percentage of the fee for each successful trade. Some examples of online P2P websites include LocalBitcoins, Paxful, CoinCola and BitcoinWorld.

 

b. Online B2C trade

With the online B2C platform, users can buy or sell Bitcoin directly at a price specified by the platform. After receiving the payment, the platform will release Bitcoin directly to the buyer’s account, or release funds to the seller’s account after receiving Bitcoin.

 

On the business side (B-side), the major source of bitcoin or funds is from the platform or cooperative partners.

 

c. Offline trade

Nowadays, buyers and sellers can conduct the Bitcoin trade even without an official trading platform. Through online chat tools and mobile messaging platforms such as WeChatQQSlackTelegram or face-to-face talk, buyers and sellers can negotiate the bilateral trade.

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