Is OTC Market more profitable?

What is Crypto OTC?

Crypto OTC is a tool that came from the traditional securities market. OTC stands literally for Over-the-Counter, i.e. "market at the counter". The term appeared at the end of the 19th century in connection with the practice of buying shares at bank counters or, in general, on the street near the stock exchange.

This type of transactions is not reflected in the market, as it is made directly between the seller and the buyer, bypassing the exchanges. Thus, any large transaction conducted using such a method as crypto OTC does not affect the price of the assets involved in the transaction in any way.

Why is it profitable to engage in crypto trading on the OTC market instead of CEX?

The main problem with almost any cryptocurrency asset is that it has insufficient liquidity. Almost any major transaction can greatly affect the exchange rate. Consider the example of CEX, i.e. a centralized crypto exchange.

The fact is that during trading on the stock exchange, in order to conduct a large transaction, you usually need to make a lot of small transactions, or use pending (limit orders). Moreover, the rate may vary at any moment, and the limit order simply will not be executed at the time required by the offer maker.

Liquidity and volatility at the time of the transaction determine the number of transfers required and the spread of rates. Thus, the sale of a large volume of a cryptocurrency asset on the exchange will begin to put pressure on the price of this asset, actually devaluing it. This hits both the seller and the buyers and the asset. Starting the sale of a large volume of an asset at a high price, the seller finishes the sale of a large lot already at a price much lower than the one with which he started the sale of the lot, and the asset price falls as the lot closes.

This is called the slippage effect.

What is more profitable by crypto trading on the OTC market instead of DEX?

The situation on DEX, i.e. decentralized exchanges, differs little from the previous one. To sell the entire volume, you need to use several DEX exchanges or aggregators.

At the same time, there is even less liquidity here, since DeFi projects are younger than such oldies as bitcoin or ether. The sale of a large volume of low-liquid DeFi tokens often leads to large losses due to the impact on the price, or the so-called price impact.

Why do Market Participants Choose crypto OTC trading?

And how to avoid the effect of slippage and price impact? There is an excellent OTC crypto trading tool for selling a large volume of cryptocurrency assets. OTC transactions are conducted outside the main market (CEX and DEX) and do not affect the asset price in any way.

Thus, the seller can sell the entire volume of his asset at a favorable price for himself and for one transaction. Transactions through crypto OTC desks have a number of advantages, including price stability, execution speed, as well as security and confidentiality.

There is another option. Often, even before the launch of some promising and large-scale project, some investors find out about it and want to buy as many assets as possible at the lowest price. There is often no free trade at this stage yet, that is, trading is open only to very large investors.

Why is there a demand for the crypto OTC market?

In the world of cryptocurrencies, the crypto OTC market has long remained the domain of major players and "whales", however, a number of factors have influenced the recent growth of interest and wider acceptance of OTC in the crypto industry. Large transactions on exchanges can only be made with full KYC, which is an obstacle for many users. Therefore, even if they wish, large transactions on CEX are not available for them. They can only go to services for OTC trading, which actively occupy a niche market with orders of about $ 50-100 thousand and above.

Disadvantages of OTC trading

Over-the-counter trading makes it possible to maintain quasi-anonymity, since:

Firstly, when making a transfer from a card, you do not write your full name anywhere (although it is easy to track it according to bank data);
secondly, most often when transferring funds in the purpose of payment, you specify "repayment of debt" or something like that, without informing that this is a transfer for the purchase of crypts. And you still need to try to link the transfer of money with the receipt of the crypt to your address.

We say "quasi-anonymity", not "complete anonymity", for the reason that the competent authorities can easily find out to whom, when and how much money you transferred from your card. However, it will be difficult to establish the relationship of money transfer with the transfer of crypts to your crypto wallet. Yes, if you get in touch with the seller of the crypt, he will inform you about the transfer of the crypt to the wallet, but proving that the crypto address belongs to you is a very difficult task that can be established only thanks to the technology of analyzing the digital footprint or your habits on the Internet.

However, there are also disadvantages of over–the-counter exchange, and first these are high commissions. So, in the same @btc_change_bot, as of August 11, 2021, bitcoin was sold for 3800,000 rubles per coin, and the exchange price was 3300,000 rubles. That is, to buy a crypt, you need to overpay as much as 15%. Do not forget about the risk of getting caught by scammers.

Advantages of OTС

But for those long–term investors who do not want to get involved with KYC, over-the-counter trading is quite an option. You buy a crypt for a long time, and at a distance of 10%-15% commissions will not be important to you. And no documents.

Conclusion

OTC trading has its advantages and disadvantages. Of course, there are many people who will say: "Why do we need these over-the-counter transactions, we will normally buy crypto on exchanges." However, others will obviously prefer OTC to conventional exchanges, because they can buy crypto "almost" anonymously, and in accordance with the DCA strategy, you can ignore high commissions.