OTC (Over The Counter market) market. Transactions on the OTC market take place outside of regulation or outside of exchanges. Transactions are made by telephone, computer networks and other means of data transmission. Most over the counter transactions are made through the trade organisers, but unlike exchange trades, in the over the counter market the organiser is not liable in case of default by one of the participants. The most famous platforms are the automated system of quotations of the National Association of securities dealers (Nasdaq Composite), trading platforms based on the Bloomberg information system, for example a platform for currencies trading – Tradebook FX.
Figure 1 – Scheme of interaction between buyers and sellers on the OTC market
Advantages of the OTC market. What good in over-the-counter trading?
Why the over-the-counter market is so attractive? Primarily it’s because of non-standard lots, commissions, regulation… We often hear that Warren Buffett bought a share in Heinz Craft for $7 billion, Abramovich bought a controlling stake in Chelsea sports club for $10 billion or Prokhorov sold a stake in Norilsk Nickel for $3 billion.
How such transactions become available? If such a volume of funds will be brought to the exchange it will cause the growth or fall of the asset by a significant amount. Such non-standard lots are sold or bought on OTC platforms by one investor or a pool of investors. The price of the transaction is often focused on the exchange. But it could be pretty substantial (by 10 percent) and will differ depending on the economic situation.
Figure 2 – Scheme of purchase of the enterprise by a pool of investors (primary market)
Сryptocurrency OTC market. Over-the-counter cryptocurrency trading.
The same thing happens in the cryptocurrency world. There are information systems that receive data about available lots, contractors agree with the terms and conclude a deal. The most popular ways of over-the-counter trading with crypto assets are the following:
– Making transactions through the professional intermediaries. It is still considered as one of the most frequently used. An intermediary in such transactions is a broker specializing in the implementation of large transactions. Information platforms allow you to set different parameters, so you can find the best seller or buyer for certain tokens.
– Transactions through specialized chat rooms. It is interesting to note that the first over-the-counter transaction in the history of the cryptocurrency market was concluded within a specialized Bitcoin-otc chat. The largest, oldest and most popular service for over-the-counter cryptocurrency transactions is LocalBitcoins.
– Making a purchase during the token sale (ICO, initial coin offering, or IEO, initial exchange offering). Transactions are made without the participation of any intermediaries with the help of smart contracts. Buying a large amount of tokens, you can receive a serious discount.
– Making transactions via “dark pools”. It is important to mention the fact that most of the specialized exchange platforms have special closed sections, which can be accessed only by big investors. In these sections investors have the opportunity to buy and sell large volumes of tokens without placing orders on the exchange and without scaring small investors.
– Making transactions through the exchange offices and ATMs (or cryptomats, such as those that have a decentralized Deex cryptocurrency exchange http://bitomat.online). In the crypto world, there is a specific need for over-the-counter transactions in crypto-Fiat transactions. Many companies declare that they have the ability to purchase or sell a cryptocurrency using a plastic bank card. But in many countries for such a purchase/sale even if they are not prohibited directly by law, can either limit the amount of the transaction or block the card. And here exchangers come to help you. Counterparties can fiat money to each other separately from crypto assets through the OTC platforms.
The guarantor of transactions in fiat world are the large banks and other professional participants of this market. For crypto assets, due to the anonymity of the majority of its participants, such a scheme is not suitable. There is another scheme. On most OTC platforms the execution of transactions is guaranteed by escrow accounts and smart contracts which are automatically executed in compliance with the agreements laid down in these contracts.
Figure 3 – Distribution of shares of fiat currencies within the OTC transactions
Bloomberg journalists conducted an analysis of the OTC market and found that hedge funds and other financial institutions prefer to buy and sell cryptocurrency as a result of private transactions, not on crypto-exchanges. Another specificity of the cryptoworld is that large financial organizations are attracted by the opportunity to buy “pure” bitcoins that have never been used in criminal activities on the OTC market. According to the Ikigai hedge fund individual investors can pay for such coins by 20% more than usual.
As a conclusion, we would like to note that any trading carries big risks. In the cryptocurrency OTC market, the most acute issue is the trust and integrity of intermediaries (brokers, exchangers…) which check contractors and help to avoid unintentional participation of the client in questionable or criminal transactions. And if the “white” services neutralize such risks thorough KYC (know your customer – know your customer), the customers of the gray OTC market’ segment are not controlled by any regulators and have to act at their own risk. On the other hand, gray OTC platforms are not defeated by regulatory sanctions. There is a good example. In 2018 Chinese regulators together with the restrictions to conduct of the ICOs banned the work of the cryptocurrency exchanges, but the restrictions did not affect the functioning of the OTC grey market.
Cryptocurrency OTC market and decentralized DEEX crypto exchange.
Following the principles of decentralization, security and anonymity DEEX offers crypto investors all the best. In fact, our crypto exchange is a decentralized p2p platform, not the usual centralized Chinese crypto-Forex with twisted volumes. All transactions are transparent, real, visible in the blockchain and are real transactions of specific users, not trading robots. However, many users have questions about the initial entry into the cryptocurrency business. Where to buy cryptocurrency? How to buy bitcoin with credit card? The cryptocurrency exchange rates offered by numerous centralized crypto exchanges are truly extortionate, especially for small amounts and when buying cryptocurrencies by bank cards.
In April 2019 DEEX will offer a solution! We are opening a secure, reliable, transparent OTC platform based on ETH and Ethereum smart contracts. You will be able to safely buy and sell cryptocurrencies by bank cards, bank transfers in several countries of the world! And all this without the risk of facing with a cryptocurrency scammer! Pure math, nothing personal!
The next stage in the development will be the platform will be the opportunity to work with other cryptocurrencies in addition to ETH. In the near future we are implementing a private club to work with a proven OTC-changers “on the ground”. The cryptocurrency OTC market is truly large, and is probably comparable in volume to 10 percent of the turnover shown on coinmarketcap. By the way, the turnover that you see on coinmarketcap and other crypto-currency trackers and listings is only the numbers drawn by Chinese crypto-Forex. Of course, there are no such trades on cryptoexchanges. But it is on OTC platforms. Realizing that transactions in the OTC segment in the cryptocurrency market is a new trend, the major Chinese crypto-Forex BANANA recently opened such a platform.
We are waiting for you on the OTC DESK DEEX! Buy crypto safe, together with DEEX!