OTC Is The Best Way For HNIs To Invest In Crypto
*This is in partnership with BloombergQuint Brand Studio
Over $17 billion of institutional capital flooded into the digital asset space in 2021 alone—proof that HNI investors, family offices, hedge funds and money managers look at crypto as a portfolio diversification strategy. But how do these top-notch investors make their large trades and what is the best way for other HNIs looking to invest in crypto?
Understanding Over-The-Counter Trading
Financial trading typically happens in exchanges or through Over-The-Counter [OTC]. Third-party stock exchanges negotiate rates between buyers and sellers and facilitate trades.
But when OTC trading desks are used, trading happens directly between parties, beyond centralised, standard exchanges and conventional business hours. In addition, OTC trading is electronically conducted over voice and without a physical location. All these aspects provide investors with confidentiality and access to liquidity outside the traditional market. OTC trading also removes inflexible organisational layers that could come in the way of exceptionally large deals.
Why OTC for Digital Assets for HNIs
Unlike exchanges, OTC trading operations are not registered or carried out in any formal exchange. The OTC trading desk offers price assurance and minimises transaction risk against price deterioration or market impact. Combined with lower counterparty risk and instant liquidity to funds, investors receive a secure, anonymous and swift method to perform large trades.
In digital assets, placing orders through a trusted OTC based firm can make the difference between a profitable trade and a mediocre one. For instance, KYC-compliant high-volume corporates or HNIs can place OTC orders on the WazirX OTC Desk for a minimum order value of $50,000 or equivalent when placing a trade request. On the other hand, in a traditional exchange, the trader could face slippage loss due to the order size that would adversely impact exchange prices. But on the WazirX OTC, OTC trading is done in three popular pairs: BTC/INR, USDT/INR and ETH/INR with an assurance of deep liquidity, frictionless access to digital assets, industry-leading security and a single price execution for large trade orders with price-lock and post-trade settlement.
OTC trading in the crypto market has the same foundations as conventional OTC trading outside other financial exchanges. But its economic significance to the crypto market is exceptionally higher than centralised platforms. Within the realm of digital assets, OTC orders embody the biggest and nameless share of the entire crypto trade volume.
Why Use OTC Desk for Crypto Over an Exchange
Institutional investors find it appealing to conduct OTC trades as they can transact large transactions privately with minimal price slippage. Although there are no official figures given the private nature of the OTC market, anecdotal suggestions reveal that the crypto OTC market sees two to three times the amount of trading volumes that crypto exchanges process every day.
An OTC trade desk offers benefits not seen with a standard exchange. For instance, when making an OTC crypto trade, an investor has complete ownership of their assets throughout the entire transaction. Trades are made instantly to and from the investor's personal crypto wallet. On the other hand, when using a standard exchange, crypto assets lie in the custody of the exchange. This is seen by some HNIs as a security risk.
There are several additional benefits of using the OTC trading desk. It offers:
Verified High Net Worth Traders. All fraud is eliminated as traders are KYC compliant.
Absolute Confidentiality and Anonymity. OTC trading desks guarantee quick, private and secure trading of digital assets
Negligible Price Slippage. Investors can buy and sell considerable digital assets and avoid price slippage.
Complete End-to-End Security, High Liquidity with No Trading Limits. There are no limits to trading, thus enabling significant transactions with high liquidity. An OTC Desk presents a secure trading platform for high-value and high-volume investors.
Constant Availability. There is always a network of buyers and sellers willing to trade digital assets at different prices and quantities.
Low Risk. Given the high volume and wide-ranging network of traders, the risk is low, saving time and expenses for investors.
Crypto OTC Desks: Where Billions Move Discreetly
OTC trading offers absolute anonymity unlike centralised stock exchanges. In a typical exchange, a large order sits on the exchange order books with the dangers of counterparty and front-running risks. But with OTC trading, since the orders are truly anonymous, significant investors are not revealed as clients.
And since it provides anonymity, high-net-worth investors have the opportunity of pursuing investments in digital assets without their orders made known unless they broadcast it themselves. Not too long ago, Michael J. Saylor, the CEO of MicroStrategy, announced the company purchased 21,454 Bitcoins and a further investment of US$175 million in Bitcoin, upping their holdings to US$425 million. However, until the CEO announced the details, the public had no access to such data. This shows how crypto trading on OTC desks maintains an impermeable trading ecosystem with inconspicuous transactions, regardless of the amount traded.
HNIs and institutional investors prefer discreetness, ingenuity and best price-performance. OTC trading desks provide these benefits and more with an added advantage of no-exchange limits affecting the order size when transacting with professional counterparties over-the-counter. HNIs can find a solid ground to trading through WazirX OTC due to the provisions of instant liquidity and execution on significantly large blocks.
OTC desks will play a critical role in establishing emerging digital asset classes among the maturing ecosystem. In fact, trading volumes surpassed $552 billion in the US, more than the total volume for 2020, revealing its growing popularity. With high liquidity to crypto markets, OTC trading will potentially increase institutional involvement and drive investment decisions.
When selecting an OTC, user experience is paramount, in addition to the speed of the transaction and cryptocurrency pair. With WazirX OTC, investors benefit from a reputable, trusted OTC trading desk at competitive prices, lightning-fast trading and near-instant blockchain transaction speeds.