What does a Cryptocurrency OTC Desk do?
This article discusses how trading works for Over-The-Counter “OTC” digital currencies. We explore why, how, and when to hire a cryptos OTC desk. And, will go behind-the-scenes with Bea O’Carroll, a top financial professional working in the space.
Decentralized trading OTC, means that an investor or seller is able to avoid (“divert”) the traditional market counter. Between a crypto seller and a buyer, who wants to deal directly with each other, OTC cryptocurrency trades create temporary relationships. These relationships most often occur with assistance of a third-party service: a digital currencies (“cryptos”) OTC desk.
An OTC desk for cryptos is a type of financial company that hires financial professionals to work exclusively with coordinating and managing digital asset transactions. OTC trades are already becoming known for providing cryptocurrency price stability, high-speed transaction execution, ultimate convenience, increased security, and confidentiality.
The Crypto OTC Desk
While OTC trading of cryptocurrencies has been compared to do-it-yourself stock trading, the differences are clear. At-a-glance, a digital assets OTC desk is different from a traditional OTC desk because OTC desks are not required to work with a market representative to execute trades. This is not completely free of cost, since trading OTC still charges trading fees. But, OTC desks do not charge broker fees. When compared to traditional market trades, the 24/7/365 cryptos OTC trading experience offers superior market access and control.
Other conditions of working with a cryptos OTC desk include:
- Transactions are dependent on buyers and sellers obtaining KYC and AML clearance
- Traders must meet transaction minimums
- Traders must gain approvals of residence corporate jurisdiction
- Crypto OTC desk operators are NOT able to provide you with advice
Why Choose an OTC Service
Liquidity and User Experience
Exchanges are open marketplaces where trades of securities and other financial instruments occur. Securities are mostly traded on traditional exchanges. In cryptocurrency, exchanges mainly focus on trading cryptocurrencies which are evaluated by compliance officers and regulators on a project by project basis for a number of attributes including whether or not they are a security or utility. Many cryptocurrencies fall outside of the definition of securities, such as Dash. People working as dealers, investors, and brokers, are centralized in order to monitor markets. Including, to standardize buying and selling of instruments, and for fraud-prevention.
OTC trades are a common tool in the traditional financial market, but different from trades on a stock exchange. To carry out a large trade on a traditional stock exchange, small transactions are required with varying rates. At the time of each small trade, the market’s liquidity and volatility determine how many transfers are needed.
Diving into the pool of opportunities and liquidity risks, meet Bea O’Carroll. Bea is a US-based principal of an OTC desk for digital currencies. NYC based, she represents NautilusTech. NautilusTech is a US trading desk and company, with Prycto being the parent company. In brief, NautilusTech provides whiteglove services (marked by custom care and attention) for those who prefer traditional ways of working with OTCs.
“Given the limitations faced when transacting large amounts with non-OTC services, many must work with an OTC, regardless of the effort it will take them. But, for those who want to make large transactions quickly, efficiently, and digitally, Prycto’s easy-to-use platform makes the grade. Their lower-than-average minimums, and low fees, allows more groups to work with them.”
As Bea mentioned, liquidity definitely contributes to the user experience of an OTC, yet it can also make it necessary to use an OTC. However that is not always enough for an OTC to be competitive, as Bea implies. OTCs need to compete with each other, and the user experience of the trade or a given platform can be the difference between two great OTCs. Having great liquidity can also help with speed, depending on the OTC. As we know, speed of a transaction can make a large impact on user experience.
Business Development Manager and former IFC, World Bank Group Officer, Omar Hamwi, spent the whole of last year planning and coordinating the Dash FastPass network program, aligning with major partners and closing those deals. Including, working with Bea O’Carroll. Since launch, the results are clear, and FastPass network continues to grow at lightning speeds.
Omar mentions the importance of Bea and Prycto’s work: “Any business would do well to look at user experience as ways to attract and retain users. No one understands this better than Bea and Prycto. They are gems. Bea, who leads Prycto’s USA operations, is one of the most client-focused people I have met. In a market where scams are common, client-focused attention to detail cultivates much-needed trust.”
To summarize, selecting an OTC is important in order to help mitigate the risks of fraud, slippage, and generally getting the best price for your trade.
Selecting a Crypto OTC Service
You will need to select an OTC service to complete an OTC trade. Not all OTC trading service providers are reputable. The very finest crypto OTC trading service providers take deeper care, and form a customer-centric workflow that showcases innovations like escrow, syndication, and lending. Top crypto OTC providers are able to quickly adapt to the movements of new and sensitive markets. These companies provide vital services related to cryptocurrency pricing, liquidity, news and market information.
We suggest that you choose a provider based on their reputation for conducting transactions in ever-growing markets. They also need to be great at understanding and responding to high volatility, illiquidity issues, and algorithmic trading practices. The major convenience is that OTC providers give investors a single price with individualized solutions. This happens without having to work with a broker. However, purchasers of cryptocurrencies from OTC markets are still required to complete Know Your Customer (KYC) and Anti-Money Laundering (AML) processes to prove identity to the OTC service provider.
Put more elegantly by Bea, “To anyone interested in trading digital assets, my advice is to do your homework beginning with security measures. Crypto trading has a lot of operational intricacies that you wouldn’t expect and there are many ways that someone new to the space may make an error or get hacked/ scammed.”
Liquidity and Privacy
There is a word that strikes fear into the heart of crypto traders: Liquidity. As corporations and operating budgets grow, a greater and more consistent liquidity, at lowest-possible cost to companies, will be expected.
In an excerpt from a cointelegraph.com article, “Crypto OTC Trading, Explained” an explanation is provided as to why people select OTC trading vs. trading on a cryptocurrency exchange:
“If you are seeking higher liquidity, combined with a decent level of anonymity, OTC trading might be an elegant solution for you… The experts agree that major exchanges usually have lower liquidity than what is ideal. This is why you might rather use OTC trading if you are looking to invest more… If you apply to OTC trading, the transaction is performed directly and does not show up in order books, which is why it will not affect the price. Moreover, if you are investing in a lot of bitcoin or any other crypto asset, you might want to protect your identity and keep the deal anonymous.”
Those “whales” with massive cryptocurrencies holdings still seem to prefer that their large trades do NOT draw attention. In traditional markets, this means they must hire specialized brokers. As you can imagine – even High Networth Individuals trading on regular exchanges – are regularly inconvenienced whenever they must honor limits to their daily and monthly trading.
Omar Hamwi suggests that there is a third reason, which is: “…to not hit the blockchain. OTCs are good at offloading crypto too. They do this mainly by selling small amounts over a period of time so that the price of the crypto doesn’t plummet. For example a $10 mil sell of a crypto outside of the top 10 could measurably move the price of the cryptocurrency downwards. This is not an unusual size of an OTC trade. Depending on the liquidity of the coin available, the effects of a large purchase or sale can vary. For example, it would unlikely impact bitcoin too much given the sheet size.”
If you support a particular project and yet want to sell a large holding of a cryptocurency, going through an OTC can help prevent a flash crash of the cryptocurrency.
Users’ Demands and Instant Experiences
Cryptocurrency user experience has made leaps forward in the past few years, however, for new users exploring services deeper in the cryptocurrency trading ecosystem, there is usually a learning curve critics cite as a barrier to entry.
Omar Hamwi added “As an example, people standing in a grocery checkout line are more likely to prefer to pay with fiat. Our habits around fiat make it seem as though obtaining and paying with cash is easier than crypto with fewer steps to take. Though if those same people tried doing something outside of their day-to-day usage of fiat, for example conducting a wire transfer to another country, they will quickly learn that it can require effort and education. This is the same as OTC transactions, which require spending time, coordination, and effort on the user’s part. This is why long-term, users are likely to stay with a particular OTC service, until something with a better UX comes along.”
Currently, only a certain number of today’s cryptocurrency exchanges could satisfy corporate liquidity demands. What’s more, there are still issues with security in trading cryptocurrencies that hinder market growth. Liquidity can hinder speed, or even result in slippage, both of which would lower user experience. OTCs today have recognized the need for a seamless experience. For that reason and to help scale their business, many OTCs have been launching platforms. A platform can have other additional benefits for an OTC such as lower trade minimums, opening OTC services to a greater portion of cryptocurrency traders.
Like exchanges, speed is important with OTC platforms, the longer a trade takes to complete, the higher the risk that the seller may miss a particular market opportunity.
Omar Hamwi stated “A network that never sleeps, the Dash FastPass network was built to solve cryptocurrency payments inconveniences during daily life. When paying at the register anywhere with cryptos, it takes most mobile payments users multiple steps and applications to complete the transaction. FastPass is currently for trading, so it solves problems in trading at the moment. User experience is critical to gaining adoption of any new technology or product. With Dash platform and network, the financial ecosystem now has correct solutions for solving today’s real problems. And, with near-instant blockchain transaction speeds.”
The lesson here is, when selecting an OTC, make sure the user experience is as seamless as possible. The speed of a transaction with an OTC can vary depending on the model, who the counter-party is, liquidity, the cryptocurrency pair and pricing (what are you buying and what you would like to receive), an OTC’s limit, overall market conditions, etc.
If you find an OTC you trust, at prices you agree with, and can conduct the trade quicker than others, you are likely in great hands.
For anyone desiring a white glove professional digital currencies OTC experience, visit Prycto.com and ask for Bea Carroll