What is “Over the Counter” bitcoin?

First things first, what is Over-the-Counter?

Over the Counter (aka OTC) is a way to trade assets, usually in large amounts, outside of regular markets or exchanges. You can think of it as making private deals, where assets are traded without putting them up for sale on a public market.

When it comes to bitcoin, OTC is a way to buy or sell large amounts privately, as opposed to using a bitcoin trading app. OTC trading is used by individuals, family offices, Bitcoin ETFs, institutions, and trading platforms themselves to buy and sell large amounts of bitcoin.

So why do people use bitcoin OTC services?

Put simply, trading bitcoin OTC is often better for larger orders. When buying or selling bitcoin in increments of $100,000’s, $1,000,000’s, or more, regular trading platforms can pose certain challenges, especially relating to limits and liquidity. Trading platforms often have purchase size limits for security, fraud, or regulatory reasons, or simply due to liquidity constraints – having sufficient bitcoin and/or cash available to fulfill large orders.

A significant part of liquidity constraints is price slippage. Slippage is the difference between the expected price of a trade and the realized price that you end up getting once the trade is completed.

But why is that?

What is price slippage?

To understand price slippage, you need to understand the market price.

Bitcoin’s market price is determined by the balance of buy and sell orders. The highest price at which buyers are willing to buy is called the “bid,” while the lowest price at which sellers are willing to sell is called the “ask.” When buyers and sellers converge on a price, a trade is made and the market price is established.

But what happens if a trader places a large buy order for more bitcoin than is immediately available for sale by the sellers on a given platform?

What ends up happening is that when the buy order is initiated part of that order is fulfilled by available sellers at the current ask price, but once all those sellers’ bitcoin are bought-up the only way to complete the rest of the purchase is to increase the price to the next available ask price.

What this means is that part of the order will execute near the initial market price, while the rest of the order will execute above that price, resulting in an overall purchase price that’s higher than initially expected. This difference between the initial and realized price is called slippage, and it can significantly impact trades of large sizes, especially on platforms with low liquidity.

Using OTC for large bitcoin trades can let you avoid slippage through the arranging of private deals with single all-in prices. In this way, large amounts of bitcoin can be traded between parties without really impacting the market price of bitcoin.

How does OTC bitcoin trading work?

OTC bitcoin trading begins with an OTC service (aka OTC desk). The OTC desk is composed of traders, who are in contact with other large market participants, including large holders of bitcoin, investors, other OTC desks, or institutions.

How OTC bitcoin trading works:

1. The customer contacts the OTC desk via email or secure messaging service.
2. They discuss key details, including desired trade size, timing, and payment methods.
3. The customer then deposits cash via wire transfer for buying, or sends bitcoin to a specified on-chain address for selling.
4. Once the funds are delivered, the customer requests a quote from the OTC desk.
5. The OTC desk offers a quoted price, which is valid for a limited time due to market fluctuations.
6. The customer either confirms the trade at the quoted price, or passes on the quote, waiting for a more favorable price.
7. Upon customer confirmation, the OTC desk locks in the trade and proceeds with execution.
8. Finally, the OTC desk arranges the cash and bitcoin exchange, sending funds to the pre-arranged destination.

Depending on the size of the order, the OTC desk may need to engage with multiple parties to facilitate the exchange. For the service of arranging the trade, the OTC desk earns a fee.

How to buy bitcoin over the counter

Strike Private is an OTC bitcoin trading service that is open to people, businesses, family offices and institutions looking to buy or sell large amounts of bitcoin. It supports buying and selling bitcoin while offering deep liquidity, custom pricing, personalized service and the option to trade in USDT stablecoins.

Strike Private is connected to your Strike account, which means you can transfer your cash and/or bitcoin in and out of your Strike account as well as view all settled and pending transactions. If you don’t already have a Strike account, you can sign up in minutes.

To buy or sell bitcoin OTC using Strike Private, contact private@strike.me for a no-obligation conversation. The Private team will be able to answer your questions regarding your desired trade size, timing, and payment methods.

Strike Private has no limit on the amount or frequency of bitcoin trading. You can also contact private@strike.me to request a custom account limit increase, so that you can trade larger volumes of bitcoin on your own within the Strike app. By default, Strike users can deposit unlimited cash via wire transfer and direct deposit to buy bitcoin, provided they’re in a region where those Strike app features are supported.