Playing big: what are OTC trades and why do they matter in the cryptocurrency market?

For most users, buying cryptocurrency is straightforward: open an exchange, choose a trading pair, place an order, and the trade is executed. However, this scenario only works as long as relatively modest amounts are involved.

Once a transaction reaches millions of dollars, the familiar trading mechanism begins to break down. Even the largest cryptocurrency exchanges cannot always provide sufficient liquidity* at a single price. Attempting to buy or sell a large volume of Bitcoin, Ethereum, or stablecoins can literally consume the available order book, leaving the final execution price significantly worse than expected.

This is why large investors, investment funds, mining companies, and corporations often bypass the exchange order book altogether. Instead, they use OTC (Over-the-Counter) trades —a trading format in which the buyer and seller agree on all transaction terms in advance, while the trade itself is executed outside the public market.

An OTC trade is an off-exchange transaction in which cryptocurrency is bought or sold directly between the parties through a specialized intermediary. Unlike traditional exchange trading, the order is never entered into the public order book and therefore does not affect the exchange's supply and demand balance.

All key transaction parameters—including the volume, price, settlement schedule, and asset transfer procedure—are negotiated in advance. The intermediary then arranges the execution of the trade and oversees settlement between the parties.

This mechanism emerged for a practical reason. Placing an order for several thousand BTC or tens of millions of USDT on the open market would almost inevitably move the market price of those assets. The lower the available liquidity, the greater the price impact. As a result, the seller receives less than expected, while the buyer pays more than anticipated.

OTC trades help avoid these losses. The transaction is executed at a pre-agreed price, while its terms never become part of the public trading history.

Today, OTC trades represent a fully developed segment of the cryptocurrency market infrastructure. They facilitate large-scale transactions involving Bitcoin, Ethereum, USDT, XRP, and other highly liquid digital assets, with individual deals often reaching tens or even hundreds of millions of dollars.

Although an OTC transaction may appear to be a simple purchase and sale, in practice it almost always involves three parties.

The first participant is the client, who initiates the transaction and intends to buy or sell a substantial amount of cryptocurrency. This may be a private investor, an investment fund, a cryptocurrency company, a mining enterprise, or a corporate client.

The second participant is the counterparty willing to execute the transaction under the agreed terms. This may be another investor, investment fund, miner, or company holding the required volume of digital assets.

The connecting link is the OTC broker or an OTC desk (a dedicated over-the-counter trading division of an exchange). The broker identifies a suitable counterparty, negotiates the transaction terms, coordinates settlement, and ensures that both parties fulfill their obligations.

From the outside, an OTC trade may appear almost invisible: nothing happens in the exchange order book, the price chart shows no sharp movements, and no large order appears in the public trading history. Behind the scenes, however, a full-scale process is underway, involving negotiations, due diligence, counterparty sourcing, and agreement on transaction terms.

The process begins when the client approaches an intermediary and outlines the transaction requirements: which asset is to be bought or sold, in what quantity, against which currency, and within what timeframe. To a retail trader, this may sound like an ordinary order, but for a large market participant, every detail matters. The price, settlement method, jurisdiction, source of funds, and delivery timeline are all negotiated in advance.

The intermediary then evaluates the transaction parameters and searches for a suitable counterparty. In some cases, a match can be found quickly, particularly for highly liquid assets such as BTC, ETH, or USDT. However, if the transaction size is substantial or the requirements are particularly strict, the search may take longer.

Once both the buyer and the seller are ready to proceed, the transaction terms are finalized. At this stage, agreeing on the price is only part of the process—ensuring secure settlement is equally important. For this reason, an escrow mechanism is frequently used: neither the assets nor the funds are transferred directly between the parties; instead, they are temporarily held by a trusted third party until all contractual obligations have been fulfilled.

The final stage is settlement. Once the intermediary confirms that both parties have met their obligations, the digital assets are transferred to the buyer, while the payment is released to the seller. At that point, the transaction is considered complete.

The primary difference between an OTC trade and a conventional exchange trade lies in the degree of control. On an exchange, an investor sees the market price, places an order, and expects it to be executed under the anticipated conditions. However, the larger the order, the less predictable the outcome becomes.

Imagine an investor wants to buy Bitcoin at $80,000. If the order book contains sufficient sell orders at that price, the transaction will proceed without issue. But if the order is large, the available liquidity at $80,000 may be exhausted quickly. The remaining portion of the purchase may then be executed at $81,000, followed by $82,000, $83,000, and even higher prices. As a result, the investor's average purchase price ends up significantly higher than expected.

This is how slippage* occurs—one of the biggest challenges for large transactions. For smaller trades, it may be barely noticeable. However, for transactions worth millions of dollars, even a fraction of a percent can translate into substantial additional costs.

An OTC trade operates differently. The parties agree in advance on the price, transaction size, and settlement procedure. Once these terms have been fixed, the trade is executed exactly as agreed, even if the market price of the asset changes during the preparation process.

Another important distinction is transparency. An exchange trade becomes part of the visible market: orders appear in the order book, completed trades are recorded in the public trading history, and large orders may attract the attention of other market participants. By contrast, an OTC trade takes place outside the public market, meaning its terms generally remain confidential.

This is precisely why the OTC market is preferred by participants for whom confidentiality is just as important as price and liquidity. For an investment fund, mining company, or corporate client, unnecessary attention to a large purchase or sale may be more than inconvenient—it can be commercially damaging, as markets often react not only to confirmed transactions but also to rumors surrounding the activities of major players.

Finally, OTC trading is characterized by a higher degree of formalization. Such transactions are typically documented, with all terms agreed upon and recorded in advance. This is particularly important for companies and institutional investors that must demonstrate the origin of assets, verify settlements, and maintain internal compliance and accounting records.

In short, exchange trading is designed for speed and the mass market. OTC trading is a bespoke solution for large market participants, offering greater control, enhanced confidentiality, and the ability to execute significant transactions without disrupting the order book or adversely affecting the final execution price.

For a large investor, an exchange is not always a convenient source of liquidity; sometimes it is more like a minefield. A single order that is too large can attract market attention, move the price, and worsen the transaction terms before the trade has even been fully executed.

This is why major buyers and sellers often choose OTC trading. The off-exchange format allows a transaction to be carried out more quietly: without a large order appearing in the order book, without an immediate reaction from other traders, and without sharp pressure on market prices. On the public market, nothing dramatic may happen at all—the asset simply changes hands.

However, this does not mean such transactions leave no trace. Blockchain remains a transparent environment, and large coin movements can still be detected, especially when funds are deposited into or withdrawn from an exchange. For this reason, the impact of OTC trading is often indirect rather than immediate. The market may not see the transaction itself, but it can still react to asset movements associated with it.

The second reason is confidentiality. For institutional investors, funds, miners, and corporate clients, this is not a whim but part of the strategy. If the market learns that a major holder is selling cryptocurrency, that information alone can become a signal to other participants. Some may start closing positions, others may bet on a decline, and some may simply panic and follow the crowd.

In cryptocurrency markets, information noise can move prices almost as effectively as actual trades. That is why large players need not only to buy or sell an asset, but to do so without turning their own transaction into a market event.

There is also a more pragmatic reason: money. For small transactions, exchange fees may indeed look more attractive. But for trades worth millions of dollars, the main cost is not the fee, but slippage.

If the order book lacks sufficient matching orders at the desired price, a large order begins to execute on increasingly worse terms. A buyer consumes liquidity at higher price levels, while a seller does so at lower ones. As a result, the final transaction price ends up worse than expected.

For a $10 million transaction, even a 1% deviation amounts to $100,000 in losses. And that is before exchange fees are taken into account. Against this background, the fee paid to an OTC intermediary (off-exchange intermediary) may not be an additional burden but a way to save money.

In essence, OTC trading is used not only to access liquidity. Investors also gain predictability: a price known in advance, an agreed transaction size, a clear settlement procedure, and minimal unnecessary attention from the market.

However, OTC trading is not a closed club where large deals are completed without problems or surprises. The off-exchange format comes with its own risks, and the larger the amount, the greater the cost of a mistake.

The first and most important risk is counterparty risk. On an exchange, trade execution is handled by the trading system: if liquidity is available, the order is filled automatically. In OTC trading, everything depends on the specific participants, the intermediary, and the agreements between them. If one party changes its mind, fails to fulfill its obligations, or problems arise with the transfer of funds, the transaction may be delayed or fall through entirely.

The second risk is related to price. OTC trading does not always mean “cheaper.” The intermediary takes into account market volatility, the difficulty of finding a counterparty, the size of the transaction, its own fee, and potential operational risks. As a result, the final exchange rate may differ from the market rate in a way that is not favorable to the client.

There is also a bureaucratic layer. Large transactions rarely take place in a vacuum, especially when banks, payment providers, or fiat currency are involved in settlement. A transfer may be subject to regulatory review, delayed, or temporarily blocked. The more complex the money flow, the higher the likelihood of additional questions.

Regulatory requirements should not be left “for later” either. Participants in such transactions need to understand how the operation will look from the perspective of taxes, reporting, source of funds, and AML checks (anti-money laundering checks). Otherwise, problems may arise after the assets have already changed hands.

Finally, there is liquidity risk. With Bitcoin or USDT, finding the other side of the trade is usually easier. But if the transaction involves less popular cryptocurrencies, the counterparty may simply not have the required volume. In that case, the transaction may take longer, be executed on less favorable terms, or fail to happen at all.

OTC trading is a tool for those playing big. It provides greater control and privacy, but requires careful selection of the intermediary, counterparty verification, and a clear understanding of all transaction terms. The off-exchange format helps prevent a single order from crashing the market, but it does not change the basic rule of the cryptocurrency market: the larger the amount, the higher the cost of a mistake.