The emergence of cryptocurrency gave impetus to the development of new economic relations in modernized decentralized format. The creators of the world's first cryptocurrency promoted the idea of trading directly between the seller and the buyer, bypassing centralized exchanges, banks and other third parties, and their commissions. This was the case back in 2008, but now, 15 years later, centralized exchanges (CEX) appeared in the crypto economy, so this market now is not completely autonomous . However, over-the-counter trading relations are still here, and people actively participate in it. Read more about this phenomenon in the material below.

OTC trading - is it profitable?

Despite the fact that cryptocurrency exchanges are constantly improving and attracting more customers, OTC transactions continue existing. Often OTC trading turns out to be more profitable when it comes to large purchases (at least $50,000). Traditional centralized exchanges lose in this matter, and here's why:

• Cryptocurrency’s price is not stable, and the execution of large transactions is not a quick process. When processing a big transaction, there may be a jump in the price, which will change the operation and the percentage of profit received by the client.
• On a traditional cryptocurrency exchange, there may simply not be enough of the desired currency. You will have to wait, which might be catastrophic regarding the price of assets.
• Carrying out large transactions on cryptocurrency exchanges may lead to strong fluctuations in the exchange rate. For example, in 2013 one person bought a big amount of BTC, which led to an increase in the coin's price from $150 to $1,000.

The over-the-counter market works differently – the client and the seller can agree on a fixed value of the crypto asset. The only downfall here is that the price of the asset in such transactions is slightly higher than the centralized exchange rate. 

OTC transactions were made at the dawn of the traditional economic system and were distinguished by freedom and independence. The seller and the buyer could exchange goods at any convenient time – not only during the working hours of the stock exchange. Since 2018, over-the-counter trading on the crypto market has been very popular. 

Advantages and disadvantages of over-the-counter crypto trading

The advantages of this type of trading include:

1. 1. Increased level of privacy. The ongoing transaction is not recorded anywhere and is not displayed publicly.
   2. Stability. Fixed exchange rate for the all period of the transaction.
   3. Possibility of carrying out big transactions. It can be more convenient than dividing a big amount into small pieces.
   4. Freedom. OTC crypto trading is less exposed to sanctions and government restrictions.

Disadvantages of OTC trading:

1. High level of fraud. It is not always possible to track the reliability of a seller or buyer.
2. No support. If a conflict arises between the buyer and the seller, it can be resolved only by them. There isn’t any special person for resolving issues .
3. Big amounts. OTC trading is considered to be available only to large players in the crypto space. 

How exchanges support OTC trading

The volume of OTC transactions is several times higher than exchange transactions. This conclusion was made by researchers from Digital Assets Research and TABB Group after analyzing the cryptocurrency market. Analysts also note that the services of OTC transactions are offered by crypto exchanges themselves, including Binance and Coinbase. The main goal of such a policy is to attract big customers.

For example, Coinbase announced that the decision to launch OTC trading in addition to the exchange was accepted after institutional investors began to appear on the market using this route as an entry into crypto trading.

The Future of OTC Crypto Business

In the future, the OTC crypto business might gain the trust of customers to such an extent that it can confidently take a dominant position on the crypto market and become available to every customer. This will ensure the existence of trading without centralization, restrictions and fluctuations. In the meantime, over-the-counter crypto trading is available only to large entrepreneurs who are able to make transactions in amounts of $100,000 or more.

If you want to learn more interesting facts about crypto then don’t forget to check out our blog! You might like our articles “What Is a Zero-Day Exploit” and “Top 5 Crypto Trading Strategies”.

The easiest way to buy or exchange coins is to use SimpleSwap services.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.