OTC deals are needed by major market participants to pre-negotiate the volume, price, and settlement procedure without placing a huge order in the open order book. An over-the-counter deal allows for a calmer purchase or sale: without a sharp price jump, unnecessary attention, and unpredictable slippage.
What Is OTC and Why It Is Not Necessarily a Gray Market
OTC means trading outside the public exchange order book. Simply put, the parties negotiate the deal directly or through a special desk, rather than sending a large order to the open order book.
The over-the-counter format has long been used not only in cryptocurrencies. In traditional markets, this can apply to stocks (finance), securities, bonds, or other financial instruments. The exchange remains an important part of the market, but not all large operations are convenient to conduct through the usual trading platform interface.
In the crypto industry, major platforms have OTC desks. For example, Kraken specifies a minimum size for such an operation of $50,000, and Binance sets a threshold of $200,000 for manual spot price requests. Private investors can also participate in OTC deals if they pass verification and meet the requirements of the chosen service.
What Types of OTC Markets and Deals Exist
The over-the-counter market can be organized in different ways. The main difference is who helps the parties find each other, agree on the price, and settle the transaction.
- Decentralized OTC market: the buyer and seller negotiate directly and set the terms between themselves.
- Broker OTC desks: an intermediary matches the counter volume, offers a quote, and helps with settlement.
- Peer-to-peer platforms: the service brings together deal participants and usually adds verification, limits, and settlement rules.
The form of the deal also varies.
- Spot deal: the asset is bought or sold for settlement in the near future.
- Forward: the parties agree in advance on a future purchase or sale under agreed terms.
- Option: one party receives the right to buy or sell the asset under pre-agreed conditions.
- Swap: participants exchange assets or cash flows according to an agreed scheme.
- Structured deal: several conditions are combined into one structure, such as price, term, limits, and delivery procedure.
The OTC market can involve cryptocurrencies, stocks, bonds, derivatives, commodities, and other financial instruments.
Why Large Deals Are Not Conducted Through the Regular Order Book
The order book shows buy and sell orders for a specific pair. If an investor sees bitcoin at $100,000, it does not mean that the entire required volume can be purchased at that price. There may be only a small part of the offer at the nearest level, and the rest will have to be bought at a higher price.
Because of this, a large market order worsens the average execution price. The larger the volume relative to the pair’s liquidity, the more noticeable the effect. On the most liquid markets, it may seem moderate, but for funds, even tenths of a percent matter.
For example, with a $50 million deal, a price deterioration of just 0.3% results in additional costs of about $150,000. For altcoins, the risk is even higher: the order book is often thinner, there are fewer orders, and the spread between the buy and sell price is wider.
OTC is needed not to bypass the market, but to control execution. The buyer knows in advance what volume they will receive and at what price. This is especially important when dealing with tens of millions of dollars or an illiquid asset.
There is another factor: the information trail. A large order in the order book is immediately visible to other participants. Trading algorithms can adjust quotes, and traders may start buying ahead of the large client, anticipating a price move.
OTC reduces this risk. The deal is discussed with the desk or several liquidity providers, rather than instantly appearing on the open platform. But this does not mean the market is not involved at all. The desk still seeks counter volume from clients, market makers, funds, miners, companies, or distributes execution across different exchanges.
The main difference is that the client receives not a chaotic purchase through the order book, but a pre-agreed process. For a major player, three things are important: the final price, the execution time, and reliable settlement.
The main advantage of OTC is that the major client knows the deal terms in advance and does not reveal the entire volume to the market through an open order.
How an OTC Deal Works in Practice
Usually, everything starts with a quote request. The client specifies the asset, deal direction, volume, and settlement currency. For example, they want to buy bitcoin for $20 million in a dollar stablecoin or sell ether for settlement in dollars.
After this, the OTC desk offers a price. Unlike a regular market order, the client sees the terms before confirming. If the price and settlement procedure are suitable, the parties fix the deal and proceed to execution.
In cryptocurrency trading, the price request format is often used. It is used by institutional platforms and major exchanges. OKX, for example, states that its liquid trading platform supports spot OTC operations, futures spreads, options, and multi-instrument strategies, with a minimum order size of $1,000.
For a professional client, this format is convenient because they can compare quotes before the deal. After confirmation, settlement occurs. It can be in cryptocurrency, stablecoins, or fiat money if the platform supports such operations. OKX’s UAE division specifies settlements in dirhams, dollars, or dollar stablecoins for OTC, with a minimum deal size of $500,000 for qualified clients.
In addition to the price, the client checks several things:
- Jurisdiction: where the counterparty is registered and what rules apply.
- Identity verification: what documents and information are needed before the deal.
- Settlement timing: when assets will be credited after confirmation.
- Counterparty reliability: who is responsible for delivery and settlement.
Settlement can be instant or delayed. In a simple scenario, the client transfers the asset after confirmation and receives the counter asset after receipt is verified.
More complex schemes involve custodians, bank accounts, credit lines, and pre-agreed limits. The larger the deal, the more important operational details become: who holds the assets, when ownership transfers, and what happens in case of payment delay.
How a Private Investor Can Access the OTC Market
Trading on the OTC market is not limited to funds or companies. A private investor’s access usually depends on the platform’s rules, the minimum deal size, and passing verification.
Most often, private clients use peer-to-peer platforms, broker OTC desks, or services of major crypto platforms. The minimum volume can vary greatly: OKX specifies a threshold of $1,000 for orders, Kraken from $50,000, and Binance’s manual spot price requests start at $200,000.
The typical procedure is as follows:
- Select a platform or OTC desk and check its rules.
- Complete verification and confirm the source of funds if required.
- Clarify the minimum volume, available assets, and settlement currency.
- Request a price for the desired asset and volume.
- Confirm the deal terms and settle according to the agreed scheme.
Who Most Frequently Uses Over-the-Counter Deals
The main clients of OTC desks are funds, family offices, miners, issuers, market makers, payment companies, and high-net-worth private investors. The common goal is to buy or sell a large volume without a sharp price deterioration.
- Funds: enter or exit a position without a public signal.
- Family offices and high-net-worth private investors: conduct large deals with pre-agreed terms.
- Miners: sell mined coins without putting pressure on the market.
- Issuers: transfer part of the reserve to an investor.
- Market makers: redistribute inventories between platforms.
- Payment companies: buy or sell large volumes through verified settlement.
Kraken classifies such operations as services for high-net-worth clients and institutional participants who need deep liquidity for large deals.
For token issuers, an over-the-counter sale can be a way to transfer part of the reserve to an investor. This is a particularly sensitive case. If the terms are closed, the market does not understand at what price the large volume was sold and what restrictions apply to the buyer.
For companies, OTC is also important for reporting. If cryptocurrency is purchased for a corporate reserve, the deal must go through verified counterparties, with documents, limits, and a clear payment history.
A regular exchange purchase may be technically simpler, but for a large client, it is worse from a legal and operational standpoint. Therefore, institutional demand often goes through prime brokers, OTC desks, and custodians, rather than the standard buy button on an exchange.
What Determines the Price of an Over-the-Counter Deal
The price in OTC does not come from a single order book. The desk analyzes quotes on several platforms, available volume from liquidity providers, volatility, deal urgency, and settlement risk.
If the client needs to buy quickly, the final price may be worse. If they are willing to wait, the desk can collect the volume in parts. Therefore, OTC is not always the lowest price, but a way to get clear terms in advance.
The price usually includes several hidden components:
- The difference between buy and sell: the desk includes this in the quote to cover the cost of finding counter volume.
- Risk fee: the desk may commit to deliver the asset even if the market moves against it.
- Operational expenses: this includes client verification, settlement, storage, and the banking part.
It is incorrect to compare OTC only with the exchange commission. It is important to look at the total execution cost: price, commission, slippage, and settlement speed.
A simple example: a fund wants to buy $30 million worth of bitcoin. The exchange commission may seem lower, but a large market order can worsen the average price by 0.2–0.5%. That is $60,000–150,000 in additional costs.
If the OTC desk offers a fixed quote with a clear spread, the deal may be more profitable even with a more noticeable explicit commission. For a large client, the important thing is not a separate commission line, but the final price for the entire volume.
Why OTC Deals Are Not Always Immediately Visible on the Chart
An OTC deal does not go through as one large order in the public order book. Therefore, it is often not immediately visible in the trade tape. This can create the false impression that large buys and sells do not affect the market at all.
In practice, the impact may appear later. If the desk hedges risk on exchanges or collects the volume in parts, the pressure is distributed over time. Then the price moves not in one large candle, but in a series of small impulses.
Some deals are made directly between two large participants and hardly affect the public market. For example, a fund buys coins from a miner, early investor, or company. The asset owner changes, but the current exchange price may hardly move.
One chart is not enough for analysis. It is useful to look at coin movements between large wallets, exchange reserves, fund inflows, and changes in open interest in the derivatives market.
OTC can also influence through expectations. If participants learn that a large seller is looking for a buyer, the price may start to fall even before the deal is concluded. If information appears about a large purchase by a fund or company, the market may price in future demand in advance.
This is why confidentiality remains an important part of the service. The major client needs not only to execute the deal, but also to avoid sending an extra signal to the rest of the market.
Main Risks of OTC Deals
OTC trading can be safe when the deal goes through a verified platform, with clear documents, client verification, and a pre-described settlement. But the format itself does not automatically make the operation safe: the key issue is who is responsible for delivering the asset and money.
A safe OTC deal starts not with the price, but with checking the counterparty, settlement rules, and documents.
Before the deal, check:
- The legal entity and platform licenses.
- The procedure for storing and transferring assets.
- The source of liquidity and the status of coins after the deal.
- Settlement timing, commissions, cancellation rights, and actions in case of payment delay.
- Identity and source of funds verification procedures.
The key risks of OTC deals are:
- Counterparty risk: the other side may delay the transfer, fail to fulfill obligations, or face restrictions.
- Price risk: with high volatility, the quote may be worse than expected.
- Client and funds verification risk: the platform may request documents and confirmation of asset origin.
- Non-transparent terms risk: a dispute may arise over timing, delivery, cancellation, or liquidity source.
The first risk is the counterparty. In a regular exchange deal, settlement goes through the platform’s infrastructure. In OTC, the client depends on who is on the other side of the operation or who organizes settlement.
If the counterparty fails to meet obligations, delays the transfer, or faces restrictions, the deal may fall through. Therefore, major clients check the legal entity, licenses, asset storage conditions, settlement procedures, and applicable law.
The second risk is price. OTC is often perceived as a way to buy better than the market, but there is no guarantee. With high volatility, the desk factors risk into the quote. The faster the deal is needed, the more expensive execution may be.
Therefore, it is important for the client to request prices from several providers. One quote does not show the whole market. You need to compare the total cost for the entire volume, the validity period of the price, commissions, and cancellation terms.
The third risk is compliance. Large over-the-counter operations often go through extended verification of the source of funds. The platform may request documents, information about beneficiaries, asset movement history, and confirmation of the economic purpose of the deal.
For the client, this is not a formality. If verification is not passed, settlement may be delayed or canceled. This is especially important when working with fiat money, banks, and regulated custodians.
The fourth risk is non-transparent terms. In OTC, not only price and volume matter. You need to understand the delivery procedure, timing, penalties, cancellation rights, liquidity source, and asset status after the deal in advance.
If these terms are not specified, a dispute can easily arise during a sharp market move. Therefore, major participants use framework agreements, limits, and pre-agreed procedures. For a private investor, this is a key filter: without documents, OTC becomes a verbal agreement.
How OTC Differs From a Regular Exchange Deal
An exchange deal is convenient for small volumes. The user sees the price, clicks a button, and gets execution through the order book. But the final price depends on market depth at the moment the order is placed.
OTC works differently. First, the parties agree on the volume, direction, price, and settlement. Only after this is the deal confirmed. For a major client, this approach reduces uncertainty but requires more verification and time.
The main difference is execution control. On the exchange, the client chooses the order type: market, limit, or algorithmic. In OTC, they agree on the entire process: price, volume, timing, settlement currency, and counterparty.
At the same time, OTC has lower public transparency. A retail investor does not see at what price the deal was made or who the seller was. Therefore, the over-the-counter format helps major players but complicates the assessment of real market demand.
In traditional finance, a similar logic exists alongside regulated platforms. The Moscow Exchange provides a transparent centralized market, but major participants can still use the over-the-counter format if they need to carefully execute a large volume.
What an Investor Should Check in News About a Major OTC Deal
If news appears about a large OTC deal, first try to understand who the buyer and seller are. A deal between a fund and a miner means one thing. The sale of a project’s reserve to a private investor is quite another.
The second important question is whether there are resale restrictions. If a major buyer can immediately transfer the asset to the exchange, the market faces pressure risk. If a lock-up is in place, the impact is spread over time.
The third question is how the deal relates to the token’s liquidity. For bitcoin or ether, it is easier to distribute a large volume. For a small altcoin, such an operation can become the main source of price pressure.
The fourth question is whether the terms are disclosed. If only the fact of the deal is known without price, timing, and restrictions, it is too early to draw conclusions about market demand. OTC confirms the interest of a major participant but does not always indicate a fair asset valuation.
What Is Important to Remember About OTC Deals
OTC is a tool for large operations where the total price, confidentiality, reliable settlement, and execution control are important. This format does not eliminate the market but allows you to avoid sharp slippage and unnecessary signals to other participants.
For a private investor, OTC deals are important as an indicator of major players’ behavior. But they should be assessed with caution: without understanding the deal parties, price, restrictions, and liquidity source, the mere fact of a large purchase or sale proves little.
