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Bitcoin OTC Trading: The Best Way to Cash Out Your Bitcoins

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Image Credit: Pixabay/Pexels

Bitcoin OTC trading is one of the best ways to trade or sell a large quantity of Bitcoin. In fact, most Bitcoin trades happen in OTC markets, but what exactly are they? How do they work, and can you use them at all? Here’s everything you need to know about Bitcoin OTC.

Over-the-counter (OTC) trading is a secure and reliable way to buy or sell a large quantity of Bitcoin. It’s more secure than a traditional centralized exchange, and it’s more private—everyone on a traditional exchange can see the price you’re asking for.

Bitcoin OTC trading is a way to make a large sale of Bitcoin. A broker finds both sellers and buyers, checks their identity, draws up contracts, and then finishes the deal. It’s the best way to trade enormous amounts of Bitcoin.

How Do Bitcoin OTC Trades Work?

To better understand OTC trades, it helps to draw comparisons to public centralized exchanges.

Centralized exchanges work with order books. To buy or sell anything, you need to place an order “on the books”. This outlines the price you want to buy or sell for, and the total quantity required. This stays on the books until you cancel it or the exchange can match your order with a buyer or seller willing to pay the same price.

If you’re selling Bitcoin, you have to deposit your coins on the exchange first. When held by the exchange, your funds are vulnerable to hacking, mismanagement, and are completely at the mercy of the exchange. You only have to look at the worst crypto hacks in history to see examples of this happening.

OTC trading does not need you to deposit funds first, it pairs buyers and sellers together by way of a broker. Once paired, both the buyer and seller complete the trade by negotiating with one another. There may be lawyers involved, or mechanisms to verify the identity and trust of each party, but the trade happens from the buyer to the seller. At no point in this process are your funds managed by an intermediary, unless you agree so in the form of a security or escrow. The process can vary, but generally, there is some form of contract and some form of fund verification.

For sellers, verification may include transferring a small quantity of Bitcoin to the buyer as proof of wallet ownership. For buyers, this may include a verified bank statement or any other means of ensuring the funds are present.

In some ways, Local Bitcoins operates like an OTC market. It pairs buyers with sellers and brokers deals, but it is not the same thing. OTC brokers take a commission for arranging trades. For this reason, brokers outnumber buyers and sellers.

If required, brokers can play a heavier role in the trade. Sometimes buyers and sellers wish to keep some of their privacy, or they don’t want any involvement with the deal. Whatever the reason, brokering OTC deals can be a lucrative business, so there are always plenty of brokers looking to negotiate on your behalf.

Finally, OTC trading helps protect the market and the price. If a whale is looking to offload 100,000+ Bitcoin, doing so may influence the price of the whole market. By performing this outside of the markets in an OTC trade, the market does not collapse as a result. Nobody knows who the two parties are, and your coins are not stuck in an exchange where they may be vulnerable to theft. In some cases, exchanges impose daily withdrawal limits—not a problem with OTC trading.

Is Bitcoin OTC Trading Safe?

Bitcoin OTC trading is one of the safest ways to buy and sell Bitcoin. Almost every trading platform will stipulate know your customer (KYC) validation. This may be more invasive than the KYC required by exchanges, as you’d expect when dealing with significant sums of money.

This may involve criminal record checks, business due diligence, financial credit reporting, and more, besides the “basic” checking of address, identity, social security, and right to work details. This KYC makes it difficult for scammers and other fraudsters to trade, and the legal contracts often stipulated bind both parties together to the conditions laid out in the deal.

Your funds are not stored on a centralized exchange, so cannot get hacked, stolen, or mismanaged. You cannot remain anonymous as your identity and KYC information gets shared with the broker, the escrow service, and your attorney. It’s rare to share your identity with the buyer or seller.

Can Anyone Execute a Bitcoin OTC Trade?

While anyone can take part in an OTC trade, it’s rarely worth it for paltry sums of money. Anything less than $500,000 is not usually enough money to consider an OTC trade.

After you factor in the brokerage fees, any escrow requirements, lawyers, KYC, time spent in discussions, and price negotiations, it can start to get expensive for smaller trades. Websites such as Coinbase make it easy to sell low amounts of Bitcoin, with limits starting at $25,000/day.

For these reasons, OTC trades are often executed for significant sums of money. Think tens of millions or even billions of dollars. Serious people with serious money buying serious amounts of Bitcoin.

Cash Out Your Bitcoin With an OTC Trade!

OTC trading is an exciting way to buy or sell vast quantities of Bitcoin, but it’s not suitable for everyone. It’s only appropriate for huge deals, quite often executed by businesses or very wealthy individuals. In summary, OTC trading:

  • Has expensive fees
  • Is not completely anonymous
  • Is secure
  • Can be slow
  • Is suited to trading vast quantities of money or Bitcoin

If you’re not yet in a position to need an OTC trade, then these best Coinbase alternatives can help you buy or sell Bitcoin for far smaller quantities.

Joe Coburn
Joe is a former software developer with a degree in computer science from the University of Lincoln, UK. As a writer at MakeUseof.com, Joe has seen his work shared by Adobe, the Arduino Foundation, and Lifehacker. Joe has collaborated with Anker, BenQ, iStock, Ledger, Ultimate Ears, and many more. Joe loves all aspects of blockchain and cryptocurrencies, particularly the technical details.
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