Traders skip exchanges preferring OTC deals

Posted: 3 April 2018 4:57 pm

Traders are turning to OTC parties to bypass volatile cryptocurrency exchanges.

With the significant price volatility facing cryptocurrency markets, savvy traders are bypassing cryptocurrency exchanges, preferring to do their deals more directly. By dealing directly, they can bypass exchange fees and settle prices on their own terms.

Powering these online transactions are tools like Skype and the like, where the OTC, or over-the-counter, trades are conducted. Kevin Zhou, founder of cryptocurrency-focused hedge fund Galois Capital, told Reuters "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".

For traders, the advantage, or disadvantage depending on your perspective, is that the transactions are not audited or reported to external agencies. Reported trades of between US$75,000 and US$350,000 are common with some desks seeing more that US$100M of trades happening each day.

One of the triggers pushing people towards OTC trades is a lack of confidence in the security of large exchanges. Whenever there are reports of an exchange being compromised, OTC operators see a spike in their transaction volumes.

Transactions made through OTC services are concluded through either the wire transfer of funds or by moving cryptocurrencies between parties.

Of course, this more opaque market is not without risks. We recently reported on Apple co-founder Steve Wozniak being scammed out of 7 BTC – a risk when coins are transferred between wallets before the payment is completely settled. And there are also challenges in establishing what prices cryptocurrencies are trading for and whether the other party is attempting to shift funds illegally as part of a money laundering scam or some other criminal exercise.

This adds further complexity to the regulatory environment surrounding cryptocurrency trading. A recent court decision in the United States recently ruled that cryptocurrencies should be treated in the same way as commodities and futures. And that means the Securities and Exchange Commission (SEC) can become involved in investigating exchanges and traders.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Latest cryptocurrency news

Picture: Shutterstock

Get into cryptocurrency

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site