20 September 2022
Cryptocurrencies have been hot news for at least the last five years. Not a day goes by without someone predicting a turning point in the market, a whale buying another multi-million-dollar block of a specific crypto coin or a long-dormant wallet suddenly being reactivated.
In 2022 the news has not always been very positive. After a meteoric surge in value in the latter half of 2021, cryptocurrencies across the board have suffered so far this year. Most currencies have shed at least two thirds of their value. And still, the so-called crypto winter drags on.
That said, there are still millions of investors who believe very strongly in cryptocurrencies. Indeed, cryptocurrencies have forever changed the financial landscape. Cryptocurrencies are here to stay, whether or not you’re a believer. And, over time, cryptocurrencies are going to make hundreds, or even thousands, of new millionaires.
When blockchain technology reached a critical mass as a tradable commodity, we saw a proliferation of exchanges and trading platforms. As the market became established, investor numbers swelled and billions of dollars were made, the need for exclusivity and anonymity arose.
And so, over-the-counter (OTC) trading started. An OTC deal is a peer-to-peer transaction that takes place directly between the buyer and seller. Such deals are usually brokered by a middleman that brings the parties together.
Many of the more reputable exchanges offer a crypto platform for OTC desks. Even though exchanges may offer OTC trading, it is bespoke and is processed separately from the automated exchange. The department or team that handles these transactions is known as the OTC desk.
There are indeed different types of OTC desks. Firstly, we look at the two major categories, namely principal and agency desks. A principal OTC desk purchases the underlying asset from the seller using its own capital. They then sell the assets to the buyer at a price which includes their profit margin.
Agency desks, on the other hand, merely act as a conduit through which a buyer and seller transact directly with each other. The agency broker makes his money by charging a fee for bringing the buyer and seller together.
Apart from the conventional exchange or crypto platform for OTC desks that are open to the investing public, private deals can take place in a “dark pool”. Not quite as sinister as the name implies, these are online forums or chat rooms that facilitate trading directly between institutional or large-scale investors. These trades take place outside of any exchange or marketplace. They’re directly negotiated deals, details of which are known only to the trading parties.
There has been phenomenal growth in the crypto market since around 2017. At its peak in late 2021, the market capitalization of cryptocurrencies was in the region of $3 trillion. Daily trading volume runs in the tens of billions of dollars. In May 2021 the volume in a single day was a mind-bending $516 billion.
Although a lot of this volume arises from the ever-increasing number of investors, much of it also arises from ballooning transaction values. Many of the bigger investors prefer to keep their crypto activities out of the public eye. Many other investors reside in jurisdictions where crypto is not yet accepted.
Apart from discretion, OTC trades have another very important characteristic. Because they are concluded privately and confidentially, they have no impact on the open market. This is a big benefit for smaller investors as it reduces the extreme price movements that multi-million-dollar trades could cause.
OTC crypto trading is not without its own particular risks. When setting out to choose a crypto platform for OTC desks, consider the following key differences between crypto desks and automated exchanges.
Liquidity - Exchanges are purely platforms that provide an automated process. There is only as much liquidity as there are buyers placing orders. With OTC, you have a middleman using his contacts to find the necessary liquidity for a large trade.
There are almost four hundred crypto exchanges at the last count. More exchanges are being created all the time while others close down. Apart from a handful of established and proven exchanges, this is a minefield for investors. But, rest assured, for a safe and reliable crypto OTC desk, you need to look no further than NextHash.
NextHash has several operating units around the world that use blockchain technology to harness the power and versatility of digital securities. Their NexInter platform is fully regulated under EU laws and offers a highly advanced OTC desk for discerning investors.
The NextHash OTC desk offers the capability to handle large volume transactions at a single price and fast order execution thanks to its simplified procedures. NextHash OTC deals have no limits. Where there's a buyer and a seller, NextHash is there.