The Grand OTC Idea and Why It Works
By Jason Budd on ALTCOIN MAGAZINE
Owners of products and services have the right to charge what they want — can we all capitalize?
During my research on three great blockchain platforms for making money, I assessed the benefits of Basic Attention Token (BAT), Steemit (STEEM), LBRY (LBC) and Hiveterminal (HVN). This kind of coverage is crucial for the blockchain industry because revenue generating platforms are underrepresented in the top 100 tokens — and these are among the very best. However, the most fascinating information I uncovered during my examination of these four tokens concerned the OTC concept proposed by Hiveterminal. Unable to find much data online about the idea proposed, I believe it to be intriguing enough to merit a separate article in its own right.
But before I get started, let’s explain more about what OTC is. It stands for “Over The Counter” and is a service that can be found in many areas of commerce, but here I will talk about its applicability to the crypto market. As crypto veterans will know only too well, buying tokens on exchanges can be difficult. The plethora of fees, long waits for support to respond and other issues regarding security put many people and businesses off. Therefore many individuals and institutions prefer to do a deal with a seller, but in private and away from the exchanges entirely. In an attempt to bring institutional investment back to the exchanges, Binance, Bittrex and others established OTC services this year. The idea was to give people with no crypto experience a much easier ride when buying, and it is showing signs of working.
However the most interesting OTC-related investments appear to be tokens you can buy from the host platform itself, bypassing the exchange entirely. And there are several crucial reasons for this. The most important is that it finally gives the company owning the token the opportunity to tell the market what they perceive the actual price of their tokens to be. But why is this so crucial? Well, there’s one key reason. Those who devote their lives to producing their own token and platform are likely to hold it in higher regard than anyone else. This is because they have the best understanding of the work, effort, time and energy that went in to creating their product’s value.
As you can see from the excerpt above, Hiveterminal states that its HVN token, currently valued at EUR 0.01 on exchanges, is in fact actually worth EUR 1. That is their view and they refuse to sell HVN for any less.
Why isn’t every token doing this?
This is the first question we should be asking, and I think the following analogy is appropriate for an answer. If for example you were to buy an item on eBay and see the exact same item, but available for different prices from different sellers, you would naturally go for the cheapest option. Why would you pay more than you have to for the exact same thing? Everyone agrees that we are all allowed to set the price we want, and then the market should decide. The same applies to OTC payments too. You can buy your tokens over the counter or on any exchanges where it’s listed. Again, just like in the eBay example above, where the product/service is the same but there are price differences, you go for the cheapest option. If the difference is negligible, that is fine. If the difference is bigger, that’s also fine too, simply because this will always be the seller’s prerogative. I can only conclude there are tokens doing this, but I haven’t found them yet.
Potential benefits to the crypto community
Crypto enthusiasts enjoy the exchange experience and are well positioned to put this experience to good use. They know what it’s like to battle the bots to get their orders filled, and are familiar with how to place orders, deal with wallets and all the rest of the baggage. But most people hate these hassles. They see using an exchange as yet another reason not to use tokenized platforms. As you can see, OTC solutions are perfect for people like this — simply buy your tokens with fiat money on the platform directly and that’s it. No stresses or strains. And they’re willing to pay a premium to do so.
Benefits for mainstream crypto adoption
The customer is presented with two methods to buy tokens. The first is the hassle-free but expensive OTC option; and the second is to deal with exchanges but get a much better deal. This carrot and stick principle will ensure that the OTC strategy is designed to increase crypto adoption.
Arguments against
As you would expect, before publishing I asked more experienced traders and hodlers to see if I could find any flaws to this strategy. The three most common observations are below, along with the logical response.
Q: “People will sell when it gets to x3 or x4 the current price, forcing the price down.”
A: Yes, that is likely — anyone who doesn’t understand or believe in the strategy will sell early. However, those who understand the strategy are confident that this trend will be endured, with the overall upward alignment towards the OTC price remaining on course. They believe that this OTC solution means that the tokens available on the exchanges will always be very undervalued.
Q: “It relies on too many other people for price rises to be sustained.”
A: Yes, awareness of this strategy is crucial. If it is not widely understood, it does not work as well.
Q: “Why hasn’t it worked already?”
A: It actually does seem to be working. Ever since the OTC feature was announced publicly on 3 April, the price has risen. It remains to be seen whether this is because of the OTC strategy or other factors. However it is likely to be playing some role in HVN’s progress.
According to this strategy, as long as investors remain oblivious to the OTC option, the opportunity will remain untaken. The argument is that until this awareness is generated, the result will be low volumes and a reluctance from those selling their tokens on exchanges to raise their prices. However, those that believe in its logic could be taking advantage of these doubts to collect the limited supply of tokens very cheaply, removing them from the market until parity with the OTC price is achieved. It’s very difficult to know for sure if this is working in isolation, but what I call the “OTC strategy” should be taken into account when trading.
Five key criteria for token selection
Therefore the basic criteria for selecting a token for this strategy seem to be as follows:
1. Are OTC token purchases available on the host platform?
2. Is the token available for purchase and sale on a top 10 exchange (ensuring reasonable liquidity)?
3. Is the OTC price significantly higher than the price on exchanges (the bigger the difference, the better)?
4. Is there a long-term and public commitment to points (1), (2) and (3) above?
5. Is the token used on a working product that is generating revenue?
If the answer to all five questions above is yes, the token could be a strong candidate to take advantage of this strategy. However, the need to fulfill point (5) is debatable. It does not seem necessary to have a working platform in place for this strategy to work, apart from the obvious benefits of generating publicity and awareness. Regardless of the platform’s development, it seems clear to me that investors would still want to purchase undervalued stock, regardless of what form it comes in. Profit is the name of the game, but a working platform still attracts more attention than just a proof of concept or an idea on paper.
While researching this article I tried to find tokens that offered the same OTC option conditions as Hiveterminal. After some time I discovered a token called SALT, which has an OTC facility. However it does not appear to have had a positive effect on the token’s price. Keen to understand this, I tried to grasp why it wasn’t working but quickly realized the reason. The SALT platform’s OTC feature does not fulfill the third criterion for this strategy to work:
3. Is the OTC price significantly higher than the price on exchanges (the bigger the difference, the better)?
The OTC price on the SALT platform is roughly the same as the exchange price, so it is clear that SALT has decided to let the market dictate the token’s value. It could be argued that this alone is the primary flaw to their approach. If for example the car company Porsche were to use the same tactic and allow the general public to set the price for their latest range of cars, what effect would this have on their business model and price? As a luxury brand, Porsche have the right to price their products appropriately, but would the general public necessarily perceive Porsche in the same way? Does Porsche dictate the value of their cars, does the market do this, or is there a combination at work? These are interesting questions for greater minds than mine, but need to be asked in order to make sense of this proposition.
So you can see why I am absorbed by this idea. Although OTC stands for “Over the Counter”, should we also see it as “Obviously too Costly” or an “Opportunity to Capitalize”? Wiser minds than mine will confirm whether the price a company sets for its own token has any impact on its perceived value.
If this confirmation does come, however, there comes another pressing question. Is Hiveterminal (HVN) alone in providing this option to the crypto community? Despite hours of searching, I have been unable to find a list of tokens/coins that fit these criteria. This would be a very worthwhile challenge to undertake but, with over 4,000 digital currencies in existence, could be like finding a needle in a haystack. So, please help me out. First of all, please let me know if my logic regarding this strategy is sound. Secondly, if you agree with my line of reasoning, please let me know of any token that ticks all the above boxes for my OTC Crypto Strategy. It would be really helpful if you could post the token name and ticker in the comments below (along with proof that the above 5 criteria are fulfilled). I’ll check them out straight way.
Thanks for getting this far — I know it was hard work and I look forward to reading your comments below!
