Cryptocurrency Trading in NZ: OTC vs Retail
This is all very new in the local crypto world so it’s no wonder you might be confused over the difference between an OTC (Over The Counter) trade vs a Retail trade.
BitPrime is doing both now, so let’s run through the differences together.
With retail in the crypto space, we’re talking reasonably small daily spends (the limits at BitPrime are currently $100 - $10k daily). Once we receive your payment, we source the crypto from our own reserves and send it on its way to you. If you’re already a customer, I’m sure you know how this works.
OTC crypto is a little different. This is where professional investors, brokers, fund managers, family trusts and the “whales” come shopping.
There’s even the opportunity for SMEs up to large corporates to use crypto as a payroll option.
Right, so How Does OTC Crypto Trading Work?
OTC trades are generally much larger than your standard ‘pay-day Hodl purchase’ and are typically in the ballpark of $50k-$500k although, with prior arrangement, BitPrime can support trades up to $30m.
OTC trades take place outside of an exchange environment, which means they're out of the public eye. Essentially, they're a private agreement between a vendor (BitPrime) and a purchaser (you), with a 3rd party custodian who holds the funds before settlement in a first-class security environment (more of this soon).
OTC works well in the crypto space as this trading method sometimes supports assets unavailable on exchanges. In a traditional sense, you could see this as an opportunity for start-ups and smaller companies to get into the market as exchange listing fees can be prohibitively expensive. See below.
Why use OTC desks?
Some investors out there want to get their hands on large amounts of crypto avoid the exchanges and of course public view (privacy is the whole point right?).
Here we’re talking miners selling their bounty, early adopters or even people late to the game with large pockets.
Did you know that even Binance and Coinbase were running OTC desks when everything looked diabolical last year?
2018, well done for hanging in there.
As the whales (institutional investors, high net-worth individuals) come in, OTC is becoming a much stronger force and a more appealing option. In 2018, it was estimated that OTC trades were double those performed on exchanges (that’s right, even Binance).
Reported daily trades with OTC were estimated at $30 billion versus $15 billion on exchanges. These figures are, of course, speculative but must be taken notice of and do somewhat indicate how the future looks.
Additionally, in 2018, 33% of these transactions were processed from South East Asia or at least during South East Asian working hours with North America taking second place.
I want to add here, the institutions who are going with the OTC option and finally seeing cryptocurrency as an asset of value are the ones that are pushing mass adoption. This is an excellent thing.
Mass adoption means we’re going shopping guys! We’re getting lunch at the airport, dinner at the mall, even appliances at the electronics store (this is already a thing in Japan).
Adoption is already happening in Brisbane, Australia and that city is a great example where we can go with this.
Is Trading Crypto Through OTC Desks Safe?
The short answer is yes as long as you remember that storing your crypto using cold storage is the key to safety with large-scale holdings.
Transactions made through this process are only sent to a pre-agreed address which means there is more peace of mind that such a large order is not going to fail.
BitPrime has been placing a significant emphasis on ensuring staff understand and can identify incorrect addresses since the very beginning.
Also, taking that hackable exchange out of the equation puts more trust in the transaction.
Trades are initiated between the vendor and client, are negotiated outside of an exchange environment and are generally completed within 3 hours during the working week.
Working with an OTC desk assures you that the funds you wish to trade are already being held in cold storage and, in the case of BitPrime OTC, are insured against loss of most forms.
BitPrime work with a 3rd party custodian with the highest levels of security on offer. Assets are stored in cold storage in air-gapped vaults safe from hacking. As mentioned above, your OTC purchase will only be released to a pre-agreed address after it has been signed by yourself, the custodian and ourselves.
Air-gapping is most commonly utilised by military, government and large financial institutions to protect their computer systems and networks. This virtually ensures these systems and networks are isolated from any other networks, including the internet we all use each day.
One benefit that needs pointing out is the avoidance of slippage. Slippage occurs in these volatile markets when you have an expected spend and an expected price. As you place the order, the cost of the asset rises, meaning you may end up with less than expected.
With this in mind, slippage is present in exchanges when making large orders which often take a longer time to fulfil. However, this is eliminated with BitPrime OTC trades as the price is already locked and loaded.
In the last six months or so, we’ve seen the price of Bitcoin (for instance), go from strength to strength and then back down. While it’s still currently looking bullish, Bitcoin does, more or less, drive the price of alt-coins, and during this period, it’s been hectic.
So as mentioned above, having a price locked in can prove to be a distinct advantage for OTC trading. BitPrime OTC supports not only Bitcoin but also Bitcoin Cash, Ethereum and XRP, with Litecoin on the way.
Overall, while this is an option for professional-traders ready to come into the market with a substantial investment, OTC is a space for investors who have faith in cryptocurrency long-term, have done their due diligence and are ready to come in and ride the rollercoaster.
How Do I Make an OTC Trade?
- Firstly, you'll need to register with us here. There’s a short form to complete and once you’ve done that we will be in touch soon!
- You'll then need to verify with us if you haven’t already. As OTC trades involve more considerable sums of money exchanging hands, we'll need to confirm the source of the funds used for your OTC trades. This may seem intrusive, but we take our AML & CFT responsibilities very seriously.
- Once you have access to the OTC desk, you'll be able to request quotes.
As much as I hope this article is informative and has given you value, if you have any questions or concerns, please reach out in the comments section below.
And if you are thinking ‘maybe BitPrime OTC is for me!’, click the link right here which will highlight the key features of trading through us. You can then choose to request access, complete a short form, and we will be in touch regarding the onboarding process very soon.
About the Author:
Evan Kitagawa-James is now freelance writing from Tokyo. He focusses on content that is simple, straightforward and aimed at the average Kiwi investor.
When not stacking sats, he can be found watching amusing dog and cat videos on Reddit. He can also beat your Super Expert Mario Maker 2 level.
The above references an opinion and is for informational purposes only. Do not take this as personalised financial or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.
Last updated: 08/10/2019