25 January 2022
The 21st century has, so far, not been short of upheaval and adjustment. From an inauspicious start in January 2009, cryptocurrencies have taken the world by storm in recent years. The first 50 Bitcoin (BTC) were mined by their inventor, Satoshi Nakamoto on 3rd January 2009. At the time, no value was attached to the coins.
BTC mining continued among a small community and the mined coins continued to have no real value until the first retail transaction took place on 22nd May 2010. Laszlo Hanyecz, a programmer turned bitcoin trader, exchanged 10,000 BTC for two pizzas from a local Papa John's outlet. Interestingly, that transaction would have been worth more than $600 million when the price peaked in 2021.
In the meantime, jumping on the blockchain bandwagon, hundreds of other cryptocurrencies have been created since the launch of Bitcoin. The market exploded as more and more people climbed into cryptocurrency mining. This was especially so since the prices started rising sharply in the latter part of 2017.
The first exchange-traded volume was reported on December 13th, 2012. The trade value was just sort of half a million dollars. Daily trade increased to millions over the next five years or so but seldom exceeded $20 million. Then, around the middle of August 2017, the volume exploded and raced to almost $5 billion on December 28th, 2017.
Since then, daily trade has seldom fallen below $100 million. With all this money flying around the market, there was a lot of brokerage and transaction processing fee revenue to be had and trading platforms and exchanges were established by the dozen. Most of the trading platforms operate as OTC cryptocurrency brokers.
OTC is the abbreviation of over-the-counter. In the pharmaceutical industry, it refers to medications that can be purchased directly without a prescription. Similarly, in the securities market, it refers to deals conducted directly between buyer and seller without the intervention of a regulated exchange. Deals are, however, usually struck through a broker or dealer.
OTC cryptocurrency brokers are far less regulated than exchanges. As such, trading is much more flexible. OTC transactions are less transparent and large deals are less likely to attract market attention and cause any price reaction. Dealing costs are also likely to be higher than in a regulated exchange.
The flip side is that there may be a little riskier as some of the products offered by the OTC cryptocurrency broker may be less established and carry a higher risk of failure in the long term. Being unregulated, the OTC platform itself may present some risk, particularly smaller platforms that have no track record.
Generally speaking, OTC trading is best suited to high net worth individuals who trade large volumes at a time. It is also the preferred option for traders who want to remain anonymous. Many brokers have a minimum trade value threshold that effectively excludes the average person. The higher transaction costs also render smaller deals uneconomical.
OTC brokers are people or agents that facilitate a trade of securities or currencies between a seller and a buyer directly. In essence, they perform the same service as the regulated exchanges. The key difference is that, in addition to exchange-listed securities, they also work with assets that do not meet exchange listing requirements.
Seeing that cryptocurrencies are not regulated, they have not yet been listed on any securities exchanges. The United States Securities and Exchange Commission is, however, beginning to enforce regulations. In addition, a Bitcoin-based exchange-traded fund was launched on the New York Stock Exchange in October 2021. Nevertheless, cryptocurrencies are still predominantly unregulated and freely trade through OTC cryptocurrency broker.
The traditional OTC market and the OTC crypto market operate essentially in the same way. As we have already mentioned, an OTC transaction is where the buyer and seller of an asset transact directly. Deals are usually done through a broker who brings the two parties together. Deal information is private between buyer, seller, and broker and does not have any impact on the market price of the asset.
Traditional OTC markets were established to deal in assets that did not meet the requirements for listing on the stock or securities exchanges. These assets were often shares in smaller companies or companies with a slightly higher risk profile. Of course, the potential returns are often higher than with listed securities.
Forex trade is also a major constituent of the traditional OTC markets. Currencies are not traded through securities exchanges but through a network of banks and currency trading platforms. Deals are mostly between the investor or seller and the intermediary party. The intermediary then typically completes the whole trade by executing the counter transaction in a separate transaction.
OTC cryptocurrency broker does pretty much exactly the same thing. The only difference is that they deal in currency only; cryptocurrencies as well as fiat currencies. Trades can be in crypto only; exchanging one cryptocurrency for another, or between crypto and fiat; buying or selling cryptocurrencies with fiat currency as the return.
Trying to trade cryptocurrencies without a broker would be foolish. The markets are fraught with risk. Finding a buyer or seller independently, in the first place, would be quite a challenge. Thereafter, there is a risk of the counterparty not honoring a deal and disappearing with the money. A broker works in a way that both parties are assured of completion of a deal upon the agreed terms.
Brokers usually operate through networks which significantly increases the reach. This means that there are more buyers and sellers that can be brought together. It increases the liquidity and cuts the time it takes for a deal to be closed. The risk of price volatility or slippage is reduced and protects the interests of all parties.
Nexthash offers a state-of-the-art global trading platform for trading in crypto and fiat currencies. Global reach ensures high liquidity and healthy supply and demand for optimum trades. Nexthash operates in compliance with all applicable EU regulations, offering a secure and trusted platform for traders. Accepting a wide range of trading pairs and currency options, Nexthash is a leader in the cryptocurrency space.