Investors are attracted to over-the-counter (OTC) trading because it offers more discretion, fewer obstacles, and more opportunities for additional liquidity than they may find in ordinary markets. OTC has also been growing in popularity among crypto investors, and it’s showing signs of becoming a relatively stable force in the crypto market.
By the end of 2020, the gross market value of over-the-counter derivatives increased by $300 billion to $15.8 trillion.
Nonetheless, there are some disadvantages to crypto OTC as well, and they relate directly to its decentralized nature. Here’s an analysis of the benefits and problems of OTC crypto trading and why a registered bank that offers OTC services might be the answer crypto investors are looking for.
The Benefits of OTC
OTC is a decentralized system, which means that the OTC brokers and traders can enjoy some independence in their transactions. OTC brokerages are not subject to the regulations of centralized markets, so they can set whatever fees they like to finance their services. Often, their prices are relatively low, making OTC an accessible option for many investors.
OTC allows investors who may have been shut out of other exchanges to trade. OTC services are also often faster than centralized exchanges. This makes them attractive to active traders.
Finally, OTC exchanges generally offer a high number of base currencies and a high volume of trades. This makes them an ideal format for crypto traders who want more flexibility and access to the market.
The Problems with OTC
Nonetheless, there are some potential problems with using OTC to trade cryptocurrencies and other derivatives.
OTC can be difficult for some investors to use, especially if they’re used to trading on mainstream markets. Many traditional investors face a learning curve when they start using OTC desks, and some may first need to get a handle on crypto trading in general before they engage in OTC trades. Additionally, it can sometimes be hard to find a reputable broker, and even harder to verify their reputation.
OTC brokers may be vulnerable to fraud and other scams. OTC exchanges also don’t have the same kind of insurance that a centralized exchange might offer, so there may be some security concerns.
OTC trading is decentralized, which means there’s no central authority overseeing the transactions. The trades are made directly between two parties, with no third-party involvement until the transaction is complete. That makes OTC very convenient in some ways, but it also creates some risks for investors that aren’t present when working with a centralized authority.
Finally, there is also no guarantee of liquidity in OTC crypto markets, which can lead to price manipulation and increased volatility in some cases.
Why OTC With a Licensed & Regulated Bank Could be the Answer
Because OTC is decentralized by nature, not all OTC brokers and traders can be trusted to do the right thing. Working with a licensed and regulated bank that offers OTC services, such as EQIBank, helps crypto investors avoid these risks while still enjoying the convenience and discretion OTC trading provides.
EQIBank is a regulated bank, subject to all the same laws, regulations, and protections as any other bank, so investors can be sure their crypto investments are protected when using EQIBank’s crypto OTC desk. It’s also more secure than desks operated by independent brokers because there’s no third party involved until after the transaction has taken place. This keeps your funds secure and protects your investments from bad actors.
Finally, EQIBank’s OTC service offers a variety of base cryptocurrencies and high liquidity, making it easy to find the trade you’re looking for in a much more reliable ecosystem.
If you’re interested in a more secure OTC experience, contact us at EQIBank today.