What is OTC and Why Does Cryptocurrency Need OTC?
OTC stands for Over-the-counter. It was originally a term used to describe stocks traded over a dealer than a centralized exchange. This means that the financial instruments that changed hands were exchanged out of a secondary market. The effects are that the trades may be private away from the participants and observers in the open market.
In OTC trades, a willing buyer and willing seller conduct a trade. There are two parties, the liquidity maker, also known as market maker, and the liquidity taker. The market maker does not have time as a constraint and would put up the price and quantity for the trade in the OTC market. The liquidity taker is the person who takes away liquidity from the market, either by buying or selling with the liquidity maker. In an OTC market, the liquidity taker is usually the one that pays the spread, effectively paying more than market price for the convenience of conducting the trade at the time he/she wishes to.
Choosing The Right Cryptocurrency OTC Platform
There are a couple of properties a good OTC platform needs before you should trade on it. They are:
- Vibrant market — lots of liquidity makers (buyers and sellers ads)
- Ease of transaction — The cryptocurrency can be bought and sold with your local currency, minimizing exchange rates risks
- Safety & Security — The cryptocurrency OTC platform has to have a reputable standing in the cryptocurrency community.
- Trustworthy Escrow & Fast Arbitration System — which will be explained in the next paragraph.
How Does Cryptocurrency OTC Platforms Work?
Let’s say Jack wishes to buy Bitcoins using Vietnamese Dong (VND) through an OTC platform because he thinks the prices are low now. As Jack has a need which is time sensitive, he is a liquidity taker. Let’s say Jack decides on Huobi Global’s Huobi OTC platform because it offers trades in his native currency — VND. He would go on and find a seller of Bitcoin that accepts SGD, find the Bitcoin seller with the best price and of available quantity to conduct the trade, then initiate a transaction.
Jack initiates a transaction by indicating he would like to buy 20 Bitcoins on Huobi OTC Vietnam platform. Huobi OTC platform will then hold the seller’s 20 Bitcoins in escrow. Escrow means that the 20 Bitcoins are no longer owned by the seller, but temporary held by the platform.
The purpose of the escrow is to keep the buyer, Jack safe. As Jack will now send 20 BTC worth of VND over to a bank account specified by the seller. Without the 20 BTC held in the neutral trusted party of Huobi OTC platform escrow, the seller may simply run away after receiving the Vietnamese Dong. In this case, Jack the buyer simply complaints to Huobi OTC platform and show the relevant remitting documents as proof and the escrowed sum of 20 BTC will be sent to Jack. This process is called arbitration.
Why Cryptocurrency OTC Platforms Need to Be Trustworthy
Given the process of escrow and arbitration, the cryptocurrency OTC platform has to be fast, fair and trustworthy. The best protection is reputation and backing. Would a billion dollar company jeopardize their reputation for 20 bitcoins? Highly unlikely. Yet the same cannot be said of a smaller outfit.
The volatile nature of cryptocurrency prices also mean that trades should be conducted fast. In the event of a dispute, arbitration should be handled in a speedy fashion to minimize the price risk of the Bitcoins being held in escrow.
Huobi OTC Review
Pros:
FAST == Huobi OTC trades can be done super fast. The trend on this platform is that liquidity makers want the trades to be concluded within 30 minutes thereabouts. That lessens the price fluctuation risk and is great for customers in a rush.
CONVENIENT PAYMENTS == There are many payment methods that are accepted by liquidity makers there. Usual bank transfers are a given, and there are many other local-specific ways to trade as well. The convenience is unrivalled.
CONNECTED TO CRYPTO EXCHANGES == If you are a Huobi Pro or HADAX user, Huobi Pro OTC allows you to move cryptocurrency from your OTC account to your crypto exchange account with a click of the button. This trade can be done both ways.
MANY CURRENCIES == Most of the Asian currencies and all the major currencies in the world have an active community of buyers and sellers working round the clock.
0% Transaction Fee == For now trades are 0% transaction fee
Cons:
INTERFACE CAN BE IMPROVED == I have been using Huobi OTC platform for a few months now and I notice the constant improvements in the user interface and the advancements in user experience. That said, there is still some work to be done in this area.
LocalBitcoins Review
Pros:
EASY INTERFACE == The interface for buying and selling is straightforward on Localbitcoins
MANY CURRENCIES == There are many currencies available however some countries do not have a lot of liquidity makers, e.g. Indonesia.
Cons:
SCAMMERS == There are a fair bit of scammers on LocalBitcoins irritating users. They initiate a trade and lock up the Bitcoins of mine in escrow and then send me fake paperwork and hurry me to release escrow payments even though I have not received the funds in my bank account. Making things worse, these scammers go on to arbitrate
SLOW ARBITRATION == The slow dispute resolution makes the scammers situation much worse. My Bitcoins get stuck in escrow for days at time while I wait for LocalBitcoins to arbitrate. Worse still, the last time I checked, the arbitration process does not work on weekends. There are times where my Bitcoins have been kept in arbitrating escrow for days and I have to absorb the price risk.
1% Transaction Fee == I only realized there was a 1% transaction fee after some trades. It is not conveyed clearly to users that there is a transaction fee for every trade.
Verdict — Huobi Pro OTC Platform is the superior product offering.
In conclusion, if you wish to get started or increase your holdings of cryptocurrency, have a go at Huobi Global new product offering — Huobi OTC. It is fast, convenience, localized and safe. I strongly recommend it.
Disclaimer: I am a liquidity maker on LocalBitcoins and a liquidity taker on Huobi OTC.
