Over-the-counter (OTC) trading provides a way to efficiently trade larger amounts of bitcoin without driving down the overall market price. Traders using the OTC markets to buy and sell bitcoin are matched directly with a counterparty to execute the trade, rather than broadcasting their trade to the larger markets. These trades are usually conducted by a broker, who performs the function of matching buyers with sellers or even executes trades on its own behalf.
OTC trades are often preferred by larger traders or institutions who want to open or exit a position without revealing their intentions to the market or affecting the market price. For example, many large miners and payment processors use OTC trades to sell the bitcoin they acquire to interested investors without flooding the exchanges. Because of this, OTC trading has always played a large role in the Bitcoin ecosystem, but the extent of that role has been largely unknown until now.
ItBit releases third quarter OTC report
ItBit is currently the only bitcoin exchange with a formal OTC trading desk, although there are other financial companies such as Genesis Trading that provide OTC trading services in bitcoin. These brokers and trading desks typically deal in trades of 100 BTC or more.
ItBit, (the first bitcoin exchange to receive a banking charter), recently released its third quarter OTC report with details about its trading volumes:
Total Bitcoin Volume Traded: 61,853 XBT
Total USD Amount Traded: $15 Million
Average Daily Trading Volume: 1,100 XBT
Average Month-over-Month Trading Volume Growth: 71%
“There is no public data available in the digital currency OTC market, so it is hard to determine where we stand," itBit Director of Trading Bobby Cho told Bitcoin Magazine." By publicly publishing our key OTC trading data on a monthly basis (trade execution, volume-traded, etc.), we aim to bring much-needed transparency to this market.
“Our hope is that other venues will join us in releasing public data, as the ultimate goal here should be to provide OTC traders with greater price discovery and fair market value,” Cho said.
Genesis trading leads in trading volume
Genesis Trading, a subsidiary of Digital Currency Group, currently leads the OTC bitcoin market in volumes traded, but doesn’t publish quarterly statistics.
“We typically trade over $10 million worth of BTC OTC per month,” Genesis Trading CEO Brendan O’Connor told Bitcoin Magazine.
Coinbase Exchange is looking at OTC type services
Coinbase, one of the larger exchanges and wallet providers, is actively looking at ways to provide some kind of a “white glove service” to prevent larger trades from moving the market price.
"We're constantly looking at ways to improve our users' trading experience, and adding features that facilitate large trades without moving the market are definitely on our radar," Coinbase Exchange Product Manager Adam White told Bitcoin Magazine. "In addition to OTC trading we're evaluating other, potentially superior, ways of facilitating those types of trades."
BTCC finds other ways to provide an OTC service
One of the world’s largest exchanges, BTCC, does not have a formal OTC trading desk but understands the importance of having some kind of “buffer” to prevent price slippage caused by larger orders.
“BTCC doesn't offer OTC trading per se, because our exchange is liquid enough to fill large orders without any issue," Greg Wolfson, Business Development Director for BTCC told us. "We also offer iceberg orders through our API, so large orders can be filled using that option as well.
“We operate one of the largest mining pools in the world, so occasionally BTCC does facilitate OTC transactions for individuals who want to purchase large blocks of coins,” Wolfson said. “Additionally, we offer the option to purchase 'new coins' through our platform. These coins have a minimal transaction history, which makes them appealing to some in the bitcoin community, who regard 'new coins' as something akin to a proof set, like those offered by national mints around the world.”
OKCoin’s Head of International Jack C. Liu understands the importance of OTC and market price buffers and told us, “We have not entered OTC trading as of yet. We think itBit is doing a good job of growing the market. The liquidity for larger sized trades at tight prices is there. That's good for the industry.”