What Is Crypto OTC Trading?

Crypto OTC trading refers to large-scale transactions made outside of public exchanges.

Institutional investors and high-net-worth individuals trade over the counter (OTC) through crypto OTC trading platforms. In contrast to transactions on Coinbase or Binance, these sales happen through dealer networks rather than centralized public exchanges. It can take longer but carries a number of benefits: greater privacy, deeper liquidity, minimal market disruption, and potentially better deals, to name a few. 

But OTC trading isn’t just about size. It comes with its own mechanics and risks. Here’s what to know before making a trade.  

How Crypto OTC Trading Works

Crypto OTC trading platforms, known as OTC desks, facilitate large-scale transactions between buyers and sellers. There are two primary types: 

• Agency desks, which charge a brokerage fee in exchange for connecting parties that trade directly

• Principal desks, which assume market risk by using their own funds to purchase assets before reselling to interested buyers

An OTC trade typically involves the following steps:

1. Initiation: A trader contacts an OTC desk expressing interest in buying or selling cryptocurrency. They outline asset type, volume, preferred pricing, and any other requirements.

2. Quotation: Agency desks connect interested parties, while principal desks provide price quotes based on market conditions.

3. Negotiation: Parties discuss and agree on terms.

4. Execution: Desks facilitate trades by safeguarding transactions with secure payment channels, escrow, and/or custody services. 

It’s important to note that OTC trading is tailored for substantial transactions, often with minimum order sizes of tens or hundreds of thousands of dollars. These services are valuable but may not be relevant to those looking to make smaller trades. 

Finding an OTC Desk

With large transactions at stake, finding a reputable OTC desk is important. At a minimum, an experienced broker should offer secure trade execution, competitive fees, and excellent customer service. However, finding the right broker depends on your priorities. 

Do you value security? Competitive prices? Support for a wide range of assets? BitGo’s crypto OTC trading platform, for example, offers high-touch services with deep liquidity pools, fully compliant trading environments, and seamless OTC trade execution. 

Benefits of Crypto OTC Trading

For institutional investors, hedge funds, or high-net-worth individuals, OTC trading offers distinct advantages over traditional exchanges. Instead of posting transactions on public order books, OTC trading takes place directly between two parties or through an intermediary, with terms and prices negotiated privately. This offers several benefits:

• Market stability: Large trades on public exchanges can trigger volatility and flash crashes. Since OTC desks collaborate with multiple liquidity providers, they mitigate the risk of large transactions adversely affecting market prices.

• Privacy: Confidentiality is a major benefit of OTC trading. Unlike exchange transactions, such trades remain off-book, protecting traders from market speculation, front-running, or unwanted attention.

• Competitive prices: OTC trading can offer better pricing and lower transaction costs due to direct negotiations and reduced fees compared to exchanges.

• Customized solutions: Crypto OTC trading often features personalized services, including tailored pricing, flexible settlement options, and high-touch customer service.

Risks and Challenges of Crypto OTC Trading

OTC trading presents numerous benefits, but it’s worthwhile to be aware of the risks and challenges. 

Take, for example, a scenario where a prominent crypto billionaire planned to sell 5% of their Bitcoin (BTC). If this information leaked, other players could take advantage by front-running their trade. That’s why it’s important to work with both reputable and discreet trading desks that protect client anonymity. 

Even if you work with a discreet broker, moves large enough to move the market are bound to attract attention. Trading desks use various strategies to mitigate this risk, such as breaking trades into smaller chunks, spreading transactions across multiple liquidity providers, or leveraging private liquidity pools.

However, no system is entirely foolproof. The interconnected nature of crypto markets means that small signals could tip off sophisticated traders. That’s why it’s essential to work with an established OTC desk that understands market dynamics.

Other challenges include:

• Counterparty risk: One party defaults or fails to fulfill their obligations.

• Regulatory uncertainty: The laws surrounding crypto vary by jurisdiction and are continually shifting. Participants must ensure compliance with local laws to avoid legal complications. 

• Limited accessibility: Due to high minimum transactions, OTC desks may not be suitable for retail investors. 

• Prefunding requirements: Some OTC desks require trades to be prefunded. Investors wanting to be more capital-efficient should choose a desk without these requirements.

• Operational risks: The private nature of OTC trades can make them susceptible to fraud or misrepresentation. This is especially problematic for initial coin offerings (ICOs), where inexperienced traders can be taken advantage of. 

To mitigate these risks, it’s crucial to work with established brokers with strong track records of successful transactions. BitGo, for example, provides institutional clients with secure custody for OTC trades.

The Importance of Trusted Partners in OTC Trading 

When executing large-scale transactions, you need more than just access to liquidity—you need a trading partner that puts security and privacy first without slowing you down.

BitGo allows you to place settle OTC trades quickly and securely. Clients can trade directly from the safety of your their insured, qualified custody accounts. There’s no need to move assets out of custody to execute your trades.

When it’s time to settle, BitGo offers flexible options—including the ability to settle instantly and for free via Go Network. Unlike traditional settlement processes that may require moving assets off-platform, trades settled through Go Network stay within BitGo’s regulated, qualified custody environment. Assets never leave custody, whether settling in crypto or stablecoins.

BitGo’s OTC desk also supports a wide range of assets and provides high-touch service designed for institutions that expect both performance and protection.

FAQ

What are the key features of crypto OTC trading?

Crypto OTC trading is designed for large-volume transactions conducted outside of public exchanges. Key features include enhanced privacy, confidentiality, reduced market impact, and flexible trading terms.

How does crypto OTC trading differ from traditional exchanges?

Unlike exchange-based trading, where buy and sell orders are publicly listed on an order book, OTC trades are conducted privately between two parties or an intermediary. This allows large transactions to be executed without alerting the market and triggering price slippage. 

OTC desks also offer high-touch customer service and personalized services such as flexible settlement options, negotiation, and lower fees than charged by public exchanges. 

What types of transactions can be conducted through OTC trading?

Not all crypto OTC trading platforms support the same transactions, but in general, most desks support crypto-to-crypto, crypto-to-fiat, and multi-asset swaps. Additionally, OTC desks support phased execution, block trades, and other structured transactions tailored for institutional clients.

What parties typically engage in crypto OTC trading?

OTC trading is a go-to for institutional investors and high-net-worth individuals. Examples include hedge funds, asset managers, family offices, corporations, crypto exchanges, and liquidity providers.