Category: Cryptocurrency Trading

Trading is a fundamental aspect of the cryptocurrency space. As exciting as crypto trading is, it is also highly risky and complex. This section gives an introductory guide to the various aspects of cryptocurrency trading.

Stablecoin Comparisons: Which is the Best?
Table of contents
One major question all new cryptocurrency investors ask is how to actually spend their cryptocurrencies. Unfortunately, cryptocurrency is just not as widely accepted as fiat currencies. Cryptocurrencies are also subject to huge price fluctuations and volatility. Therefore, to “lock in” the price of your cryptocurrencies and as a springboard to cashing out crypto to fiat, many have converted their cryptocurrencies to stablecoins instead. This allows one to keep their dollar-pegged coins in exchanges or cold/hot wallets, so when the moment to jump back into the bull run comes, they can do so within minutes without having to deal with fiat on-ramps. Alternatively, to easily convert their stablecoins to fiat currencies for spending.

Most have considered stablecoins to be a safe means of preserving their capital without experiencing volatility and having to leave the crypto ecosystem. After all, they’re… stable, right?

In most cases, they have been, but the most recent collapse of one of the largest and well-respected stablecoins, terraUSD (UST), and other less known ones, like neutrino USD (USDN) and DEI, has led people to question the stability of all stablecoins. But is this warranted? Isn’t there a bit more nuance to the mechanisms by which a coin retains its dollar or other fiat currency peg, each with their own risks and advantages?

Although a seemingly straightforward idea, stablecoins can be quite tricky to unpack and analyze, especially when talking about non-collateralized algorithmic stablecoins, which sound too good to be true, and in some cases, are. With this in mind, let’s take a look at stablecoins, what kinds are out there, how well they are doing, and what makes them tick.

Check out our latest video- Stablecoins: Are they safe? ($UST, $USDT, $USDC, $BUSD)

Stablecoins: Are they safe? ($UST, $USDT, $USDC, $BUSD)

Stablecoins – What Are They and How Are They Different?

Stablecoins are cryptocurrencies that are pegged 1:1 to the value of a fiat currency, meaning that, for example, every 1 USDT (USD Tether, the biggest market cap stablecoin) is worth 1 US Dollar. There are numerous stablecoins in circulation, with different coins having different mechanisms for collateralizing their stablecoins.

The most commonly used feature to categorize stablecoins is by looking at how each of them backs their tokens, e.g. their collateral/reserves. By doing that, we can focus on using more narrow criteria for evaluating and comparing stablecoins based on the risks and advantages that stem from the chosen collateralization mechanism. Broadly speaking, there are three main types of stablecoins: Fiat-collaterized stablecoins, crypto-collaterized stablecoins and algorithmic stablecoins.

Fiat-collateralized Stablecoins

By far the most popular type, fiat-collateralized stablecoins occupy the top 3 spots (USDT, USDC, BUSD) among stablecoins by market cap, accounting for roughly 94% of the total ~$155 billion stablecoin supply.

(Total Stablecoin Supply)

Their working principle is the most straightforward to understand. Each of these coins is backed by a combination of real USD cash reserves, US Treasury Bills, and commercial papers (liquid short-term debt issued by companies).

Crypto-collateralized Stablecoins

Similar to fiat-backed stablecoins, crypto-backed stablecoins use cryptocurrencies as collateral, and smart contracts and, typically, governance tokens to monitor price stability. Due to the volatile nature of cryptocurrencies, crypto-backed stablecoins are over-collateralized (150% for DAI, for example) to account for periods in the market when prices of the collateral assets keep going down. Learn more about DAI.

Compared to fiat-backed stablecoins, they’ve witnessed a much slower rate of adoption. However, based on data, it does seem that they are slowly starting to gain momentum and dominance over the past years, as people begin to develop trust in the previously experimental mechanisms, which is to be expected.

There are also hybrid collateral tokens such as Reserve Tokens (RSV) that are backed by both digital and fiat assets.

(Share of Total Stablecoin Supply)

Algorithmic Stablecoins

By far the most technically complex and technologically least mature, algorithmic stablecoins rely on on-chain algorithms to handle changes in supply and demand between the stablecoins and their sister tokens that back them by burning and minting them in both directions through a process called seigniorage, to maintain a dollar peg. This, however, only works while there isn’t a strong downward pressure on the peg that keeps stressing the mechanism, which can lead to a downward death spiral during which both tokens keep losing value as users keep panic selling at the same time as the algorithm tries to stabilize the price. Although not fully collapsed, neutrinoUSD and its Waves protocol have been experiencing extreme turbulence for the better part of two months, making users lose confidence in its stability, especially as its working mechanism is very similar to that of UST.

On the less extreme side of algo-stables lie hybrid stablecoins, or fractional-algorithmic stablecoins, such as FRAX, which is partly backed by collateral, and partly algorithmically by adjusting the collateral based on the deviation of FRAX from the $1 peg.

Learn more with our Ultimate Guide to Algorithmic Stablecoins:

https://www.youtube.com/watch?v=hdmotWPNVdQ

Criteria for Comparing Stablecoins

Decentralization

The impact of regional regulations can be a risk many would not find appealing. It’s completely reasonable to expect that the industry would be capable of creating largely decentralized stablecoins that are collateralized by one or more decentralized cryptocurrencies, and governed by a DAO. Such is the nature of MakerDAO and its DAI stablecoin, which has shown its peg strength throughout this year and especially during the most recent catastrophic UST collapse. There is a small caveat, however.

The largest crypto-asset backed stablecoin with a $6.5 billion market cap, DAI, is still heavily backed by the second largest market cap stablecoin, USDC, which itself is backed by fiat reserves, calling into question whether it truly is as decentralized as it purports itself to be. The reality is not as grim as it might seem. Even though USDC and USDP (another fiat-backed stablecoin) comprise 28.1% of the total DAI collateral, ETH and WBTC (Wrapped BTC) boast an impressive 58.6% collateral, tipping the collateralization balance in favour of decentralized digital currencies instead of centralized stablecoins. In addition, the Maker platform with the MKR and DAI tokens, together with all of its smart contracts, lives on the Ethereum blockchain, making it truly trustless and decentralized, even if a good portion of the collateral is not.

(DAI collateralization)

On the other hand, the decentralization of all stablecoins might not be necessary, or even desirable, as properly regulated stablecoins almost by definition require a legal entity or a consortium of entities with exposure to major governmental bodies (especially in the US) to be behind the stablecoins, so that there is little doubt about who is responsible for ensuring a full fiat backing of their stablecoins. However, this would imply heavy centralization of control over the stablecoin supply and the general mechanisms for issuance, governance, and, crucially, potential censorship.

A centralized stablecoin is a double-edged sword. On one hand, it gives unprecedented power over a vast supply of stablecoins that a decentralization-focused industry heavily relies on to do daily business. On the other hand, it allows for companies like Binance, who are behind the popular BUSD stablecoin, to prioritize user safety and regulatory compliance, giving users peace of mind about the safety of their assets.

Thus, a strong argument can be made to safely onboard millions of new users through reasonably regulated stablecoins. It’s important for this industry to appreciate the need to offer a wide range of stablecoin alternatives, from centralized to decentralized, for users with different risk appetites and technical competencies in order to accelerate crypto adoption worldwide.

Compliance & Transparency

Closely tied with the level of decentralization of a stablecoin, regulatory compliance and transparency are absolutely crucial for companies who are backing their coins with cash reserves, and who desire to find strong and growing support by institutions, companies, and investors looking to enter the space, but who have been apprehensive to do so due to concerns about a potential inability to redeem their tokens for dollars.

It’s important to note that regulatory compliance is largely a concern for stablecoins operated by corporations, as they are the ones operating mostly behind closed doors, with most of the details about their inner workings, decisions, and collateralization mechanisms being hidden from the end-users and legislators. In such situations, it is more than reasonable to expect a regulatory body to force at least some oversight over how exactly these companies are operating their stablecoins and whether they do possess the collateral they claim to have.

The same can’t be said about open-source, decentralized governance-powered, blockchain-native, crypto asset-backed, and over-collateralized stablecoins that are being operated completely out in the open, with every decision, piece of code, and capital relocation in smart contract escrow accounts being registered on-chain. For coins such as DAI, compliance and transparency are baked into the protocol, and it can be reasonably argued that the necessity for any kind of regulatory oversight is moot, as the community and the free market cryptoeconomic pressures have organically grown a robust and freely auditable stablecoin that’s fully backed by digital currencies.

For fiat-backed currencies, the two large-cap extremes in the range of transparency and compliance are BUSD and USDT. While BUSD has been extensively cooperating with the New York State Department of Financial Services (NYFDS), and showing that every BUSD is backed by an equivalent amount of cash, USDT has been under significant scrutiny over the past years regarding its executives and the USDT backing. These allegations, combined with the lack of transparency by Tether, have made many worry whether USDT is a house of cards about to crumble as the Chinese real estate bubble begins to pop.

Financial Sustainability

In addition to the existential risks posed by the type of collateral chosen for stablecoin reserves, another source of risk that can be analyzed for a project is its cashflow. Changes in the cashflow of a protocol can offer clues about the health of the ecosystem and its ability to withstand market shocks.

Understanding how a stablecoin protocol spends and, most importantly, earns its money, is key to making predictions about the long term sustainability of such projects. Without proper long term revenue models, protocols are left to come up with highly appealing but unsustainable practices such as incredibly high yields on stablecoin deposits (such as UST had) or very low to non-existent trading fees to make it appealing for users to use that stablecoin as their dominant medium of exchange. These kinds of practices sooner or later come back to bite them in the ass, as there is a very high probability that the high yields and low fees are paid for not from organic revenues, but rather from alternative revenue sources (as is the case for Binance), or from project’s treasury/VC investment money, in hopes that they would be able to subsidize the attractive rates for long enough to reach a critical mass of users to then eventually either lower the yields and increase the fees, or simply keep running a ponzi-like operation for as long as possible.

Risks are High, always DYOR (Do Your Own Research)

If something in crypto sounds too good to be true, it very likely is. The most recent example of this was the Anchor Protocol’s 19.5% yield for UST deposits, which should’ve been a huge red flag, and yet many, many individuals chose to deposit their life savings into a supposedly stable UST in hopes of an unsustainably high APY.

For a $50 billion project to go down to virtually nothing in a matter of weeks is nothing short of astonishing, and should serve us all as a warning to do our due diligence thoroughly, and ask uncomfortable questions, even if the whole market seems to be fully on-board with a project.

As the saying goes, “Follow the money.” If a protocol is promising unbelievable returns, if the company behind a stablecoin year after year refuses to prove their fiat reserves, and if a algorithmic stablecoin seems to have a fishy peg stabilizing mechanism that can only work in an up-only environment, then you should exercise caution. And as with everything, whether it be cryptocurrencies or stocks etc, ask yourself if you have really fully done your research and never put in more money than you can afford to lose.
June 5, 2022
Bybit Funding Rates and Fees: Everything You Need to Know
Bybit is a cryptocurrency exchange offering trading perpetual contracts in the cryptocurrency market. However, it’s essential to understand the rates and fees that come with using the platform. In this article, we’ll explain Bybit’s funding rates and fees and give you some tips on how to manage them.

Use our PROMO CODE below to get a sign-up bonus of up to $30,000!

Check out our Bybit guide and review here.

What is Bybit?

Bybit is a cryptocurrency exchange founded by Ben Zhou and launched in 2018. The exchange currently has over 10 million users worldwide and supports over 100 cryptocurrencies. Bybit offers the following products: spot trading, derivatives trading (including USDT/USDC perpetual contracts, USDC options, leveraged trading, inverse perps and futures), an NFT marketplace, and Bybit earn.

Bybit Funding Rate Explained

Bybit’s funding rate can be challenging to understand for new traders. However, it’s essential to know how it works to manage your trading costs effectively. In simple terms, it is a fee that traders pay or receive when holding a position overnight. If you’re holding a long position, you’ll pay a funding fee if the funding rate is positive. If you’re holding a short position, you’ll pay a funding fee if the funding rate is negative.

Learn more: Crypto funding rates: How it works and how to earn passive income

Funding Rate Calculation

Bybit funding rates on perpetual contracts (Source: Bybit)

Funding Fees on Perpetual Contracts

Bybit charges a funding fee for holding positions overnight, and the fee is calculated based on the funding rate. This is calculated using the following formula:

Funding Fee = Position Value * Funding Rate

In this formula, “Position Value” is the total value of the trader’s position, and “Funding Rate” is the current funding rate. The fee is charged every eight hours, and it’s debited or credited to the trader’s account.

The Funding Rate is already stated on the screenshot, i.e. 0.0001%. The Position Value is calculated using the following formula:

Position Value=Quantity of Contract x Mark Price

For example:

Trader Bob holds a long position of 10 BTC contracts and the Mark Price is 16,000 USDT at the end of the funding interval with a Funding Rate of 0.0001%.

To calculate the Position Value:

Position Value= 10 x 16,000 = 160,000 USDT

Now we can calculate the Funding Fee:

Funding Fee= 160,000 x 0.0001% = 0.16 USDT

Since the Funding Rate is positive (i.e. 0.0001%), long position holders have to pay short position holders. So, Trader Bob must pay 0.16 USDT to a short position trader. Meanwhile, a short position holder with the same quantity of contracts (i.e. 10 BTC) will receive 0.16 USDT.

Funding Fees on Inverse Contracts

Here’s how to calculate the funding fees on Bybit inverse contracts using the below screenshot as an example. Since the funding rate is positive, long position holders need to pay a 0.01% funding rate to short position holders.

Bybit funding fees on inverse contracts (Source: Bybit)

The funding fee is calculated using the following formulas:

Funding Fee= Position Value x Funding Rate

The Funding Rate is already stated on the screenshot, i.e. 0.01%. The Position Value is calculated using the following formula:

Position Value=Quantity of Contract / Mark Price

For example:

Trader Tom holds a long position of 10,000 BTCUSD contracts and the Mark Price is 16,000 USD at the end of the funding interval with a Funding Rate of 0.01%.

To calculate the Position Value:

Position Value= 10,000 / 16,000 = 0.625 BTC

Now we can move on to calculate the Funding Fee:

Funding Fee= 0.625 x 0.01% = 0.0000625 BTC

Since the Funding Rate is positive (i.e. 0.01%), long position holders have to pay short position holders. So, Trader Tom must pay 0.0000625 BTC to a short position trader. Meanwhile, a short trader holding the same quantity of contracts (i.e. 10,000 BTCUSD contracts) will receive 0.0000625 BTC.

When does Bybit calculate its Funding Rates?

Bybit generally calculates its funding rates every 8 hours i.e. at 00:00 UTC, 08:00 UTC and 16:00 UTC. These are known as “funding intervals”. However, Bybit may adjust the interval depending on the live market situation. Particularly if there is a significant gap between the Last Traded Price and the Mark Price.

What are the Last Traded Price and the Mark Price on Bybit?

Bybit uses two prices to protect traders from market manipulation, also known as a Dual-price Mechanism. These are the Last Traded Price and the Mark Price. The Mark Price is used to decide when to liquidate a trader’s position and to measure their profits and losses. It is based on a global Spot price index plus a decaying funding basis rate. A trader’s position will only be liquidated if the Mark Price reaches their liquidation price. The Mark Price can be found at the bottom right-hand corner of the page.

The Mark Price can be found at the bottom right-hand corner of the page.

Bybit Mark Price as shown in yellow (Source: Bybit)

On the other hand, the Last Traded Price reflects Bybit’s current price and is always anchored to the spot price.

When do Bybit traders pay/receive the funding fee?

Traders will only pay or receive funding fees if they hold an open position at the end of every funding interval. As mentioned, this is generally at 00:00 UTC, 08:00 UTC and 16:00 UTC. However, Bybit warns users that opening/closing a position within 5 seconds before/after the funding interval does not guarantee they would be included or excluded from receiving or having to pay.

Bybit funding rate and countdown (Source: Bybit)

Users can see the current funding rate and when the next funding interval ends on Bybit. In the example above, the funding rate is negative. This means that short position holders will pay fees to long position holders at the end of the countdown.

The funding rate mechanism happens between traders, so Bybit doesn’t take any fees. If a user has to pay a funding fee, it is taken from their available balance. If they don’t have enough money in their balance, the fee is taken from their position margin. This can make the liquidation price of their position more likely to reach the mark price. This increases the risk of liquidation.

Bybit Funding Rate History

Bybit’s funding rate history is available here on the platform’s website. The history is crucial for traders who want to understand how the rates have changed over time and make informed trading decisions.

Mobile App

Bybit has a mobile app that you can download from Google Play or the Apple App Store. The app helps traders keep track of the latest rates and fees. It has a chart that shows the current funding rate for each contract on the platform.

Managing Bybit Funding Rates and Fees

Bybit funding rates and fees can affect how much money a trader makes. Traders need to manage these costs to make the most profit. Here are some tips on how to do that:
1. Watch the funding rates for the cryptocurrencies you trade. Look at the chart and past data to find patterns and make better decisions.
2. Be careful with your positions to lower your funding fees. Close positions before the funding interval if the rate is high or if you’re not sure about the position.
3. Bybit lets you trade with up to 100x leverage. This can make your profits or losses bigger. Use leverage carefully and don’t take on too much risk.
4. Make sure you have enough money in your account to pay the funding fees. Bybit will close your positions if you don’t have enough money to pay the fees.
How to profit with Bybit Funding Rates and Fees

Crypto funding rates are linked to the price trend of the asset. The spot market sets the rate. When the price of the cryptocurrency is going up, the rates will be higher. When crypto prices are rising, there are usually higher trading price premiums and rates. In these situations, traders who hold short positions on perpetual contracts and go long on the spot market can earn funding fees.

When crypto prices are falling, the trading price of perpetual contracts will be lower than the spot price. This will make funding rates go down. Traders who go long in the perpetual contracts market and hold short positions in the spot market during this time can receive funding fees.

On Bybit, you can check the historical and predicted rates here.

Conclusion

Bybit is a popular cryptocurrency trading platform that offers perpetual contracts on several cryptocurrencies. Traders need to understand the funding rates and fees associated with the platform to manage their costs effectively. By monitoring the rates, managing their positions, using leverage wisely, and keeping a sufficient balance, traders can maximize their profits on Bybit.

Sign up and get started today!

Frequently Asked Questions (FAQs)

What is Bybit funding rate?

Bybit funding rate is the interest rate that traders pay or receive for holding positions overnight. It is calculated based on the difference between the funding rate index and the last traded price of the contract. Bybit charges a funding fee every eight hours for holding positions overnight.

What are Bybit funding fees?

Bybit funding fees are the fees charged for holding positions overnight. The funding fees are calculated based on the position value and the funding rate. The funding fee is debited or credited to the trader’s account based on the position they hold.

How are Bybit funding rates and fees calculated?

Bybit funding rates and fees are calculated based on the position value and the funding rate. The funding rate is determined by the difference between the funding rate index and the last traded price of the contract. The funding fee is calculated using the following formula: Funding Fee = Position Value * Funding Rate.

What is Bybit funding rate chart?

It is a chart that shows the historical funding rates for each cryptocurrency offered on the platform. Traders can use the chart to analyze the funding rates and make better-informed trading decisions.

What are some tips for managing Bybit funding rates and fees?

Traders can manage Bybit funding rates and fees by monitoring the rates, managing their positions carefully, avoiding overexposure to the market, using leverage wisely, and ensuring that they have a sufficient balance in their account to cover the funding fees.

What is the funding fee Binance?

Binance also charges a funding fee for holding positions overnight. The funding fee on Binance is calculated using the same formula as Bybit. However, the rates and fees on Binance may differ from those on Bybit.
April 24, 2022
Top 5 Bitcoin OTC Brokers: Efficiently trade large volumes of Bitcoin
What’s are Bitcoin Over-the-Counter (OTC) brokers?

Over-the-counter (OTC) are entities that allow the buy and sell of large quantities of Bitcoin and other cryptocurrencies. OTCs offer more private and personalized services to institutions and high net-worth individuals who need a high degree of liquidity and privacy. The key advantage to an OTC is that they handle large trading volumes, such as trading $100,000+ USD without price slippage. OTC traders will normally quote a strike price for the entire order block with immediate execution. This is contrasted with trading on cryptocurrency exchanges where large orders will cause the price to decrease due to a lack of buy orders. OTC desks allows institutions and high net-worth individuals to buy Bitcoin without a having dedicated trading desk.

OTC offices can be either regionally located, serving local clients or global. Often major cities such as Hong Kong, Tokyo or New York have OTC brokers servicing local clients. These brokers can provide very personalized services and even in person meetups. In contrast, global OTCs such as Binance OTC handles transactions over the internet.

Traditionally in the stock market world, OTC desks facilitate trading of securities that are not listed on formal exchanges, e.g. the New York Stock Exchange.

Benefits of trading via an OTC broker
- High Liquidity – Dedicated traders from OTC desks will help increase the liquidity of the overall market. This means they can handle large order blocks
- Fixed Price – OTC brokers will over a quotation for the entire order block. This means orders are not affected by price slippage.
- Easy Fiat Options – Brokers will have local bank accounts and can sometimes even accept cash.
Disadvantages of trading via an OTC broker
- Limited range of cryptocurrencies – Often OTC brokers specialize on a few cryptocurrencies. This means unlike exchanges, they will not offer 100+ trading pairs. Instead, they will focus on the major popular cryptocurrencies that have high trading volune and interest such as Bitcoin, Ethereum or some stablecoins.
- Manual trading process – Traders are executed by a human counter-party. This trading times will often be limited to regular office hours.
- Large order size required – Brokers often have a minimum order size, such as $100,000 USD traded within a certain period of time.
How do OTC Brokers work

OTC desks have a network of buyers and sellers. The trades themselves are facilitated by OTC broker-dealer who will locate and negotiate directly with prospective buyers and sellers over computer networks or by phone. This is contrasted from trading over exchanges where the prices and order books are publicly available. For OTC desks, their broker-dealers will negotiate the trade price for you. Trades are also not publicly listed giving the parties privacy.

Therefore, to fully understand what is going on in the cryptocurrency markets it is important to consider what is also happening at OTC desks. This is because large transactions happen on them on a daily basis.

Bitcoin OTC vs Exchanges

The choice of whether to use a Bitcoin OTC or Exchange depends largely on the volume of orders. Big players looking to buy or sell large quantities of cryptocurrencies are better off using an OTC broker. This is because a single exchange (no matter how large) will not have the liquidity necessary to fill large order blocks. Research has shown that sell orders of US$30 million can significantly suppress the price of a cryptocurrency, hence causing slippages of 5-10%. This amount is much larger than the fees charged by OTC brokers. The second advantage of using OTCs is that they can offer to lock in a particular quotation with the option to settle at a later time. This gives people additional flexibility to move funds from banks or cold-storage (such as the Ledger Nano X).

However, depending on who you are, one upside or downside of OTCs is that they are not transparent. So while you can try to gauge whether there is a lot of trade flow through an OTC desk by reading their reports (if any), there is no way you can verify if they are being truthful or giving you the best price. On the other hand you can conduct trades privately compared to on exchanges and the price will be “locked-in” and not subject to any fluctuation between the time of agreement and the time of settlement.

How to trade Bitcoin with OTC Brokers

This guide outlines the general steps involved in trading with Over-the-Counter Brokers. Generally speaking, brokers provide similar on-boarding and trading experiences. It is important to remember all brokers will require verification of your identity, known as Know-Your-Customer (KYC) registration. On top of this, brokers will verify the source of funds to prevent money-laundering.

Summary of how crypto is traded with an OTC broker (Image credit: Genesis Block)
Time needed: 3 days
How to trade with Bitcoin OTC Brokers
1. Signup
  Sign up to the broker via website, email, call or in-person meetup. They will usually ask about the type and quantity of cryptocurrencies you would like to sell.
2. Onboard
  Every broker will require you to fill in onboarding documents and legal disclaimers. They will also ask you to provide various types of documentation such as a Government ID, Proof of Residence and Proof of Income.
3. Communicate
  Once on-boarded, they will give you a communications channel. Typically this involved a messaging platform where you can request quotations for orders such as:
  You: “I would like to buy 100 Bitcoin”
  Trader: “We can offer 100 BTC at a price of $8123 USD per BTC”
4. Confirm trade
  You can choose whether to accept the price quotation or not. If you agree, the trade is immediately confirmed and the trade will provide you with a deposit address.
5. Trade Complete
  Once the deposit is received, the order is no fully executed and you will receive your trade
Top OTC Brokers around the world

When trading with OTC brokers, it’s important to only use trusted and regulated brokers. This is important because of the large transaction sizes involved – you don’t want to get delayed or even scammed out of a transactions. We compiled the list of the biggest OTC brokers around the world

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Bitcoin OTC in China and Hong Kong

Bitcoin OTC brokers play a very important role in China due to a government ban on cryptocurrency exchanges. In China, it’s no longer legal to operate a cryptocurrency exchange due to a legislation change in 2017. This has left large Chinese exchanges and OTC desks such as OKex, Binance, Genesis Block and Huobi operating overseas or as OTC brokers.

Currently Bitcoin OTCs brokers are legal in China. They operate by directly connecting buyers and sellers of Bitcoin. However, Chinese financial institutions such as Alibaba’s Alipay have distanced themselves from OTC transactions, stating that they will “immediately stop relevant payment services“.

There’re several reports about @Alipay being used for bitcoin transactions. To reiterate, Alipay closely monitors over-the-counter transactions to identify irregular behavior and ensure compliance with relevant regulations. If any transactions are identified as being related to bitcoin or other virtual currencies, @Alipay immediately stops the relevant payment services.
AliPay official statement

Interview with OTC Brokers

Travel with me to Genesis Block in Hong Kong to see what’s happening with trading behind the scenes and Over the Counter (OTC).

Vlog: Crypto Trading/ Market Manipulation/OTC Markets

OTC money laundering and criminal activity

One of the biggest concerns of OTC brokers and trading is the risk of exposure to criminal funds. This is because OTC desks who do not perform proper due diligence on source of funds can come into contact with tainted coins. In a 2020 report, cryptocurrency research company Chainalysis released a report on money laundering in the exchange and OTC space. The report accused some OTC desks of illegally taking laundering funds for private clients. In order to protect yourself from such activity, ensure you are trading with legitimate brokers who have proper KYC. On top of this, never buy “discounted” Bitcoins offered on social media such as Instagram or Facebook.

Frequently Asked Questions (FAQ)

Will OTC brokers accept cash?
Often OTC brokers will have a cash option – for both buying and selling Bitcoin. It’s important to remember for large quantities of cash, KYC registration is required. On top of this, proof of funds may also be requested.

Do OTC brokers require my Identity?
To comply with anti-money laundering laws, OTC brokers will require you to submit official documentation such as Identity, Proof of address, bank account statements, proof of income or proof of funds. The type of identification required however would depend on the OTC brokers own company requirements and any information as required by the laws of the relevant jurisdiction.

Is there a limit on how much cryptocurrency I can trade with an OTC?
ost OTCs do not have a maximum limit on the amount of Bitcoin you can buy or sell. Order sizes of 100 or above BTC are commonplace for these brokers. However, some brokers will have a minimum order size, such as $100,000 USD.

How do I buy Bitcoin Anonymously (Privately)?
The best way to buy Bitcoin without a record is via cash or peer-to-peer transactions. It is important to remember this contains inherent risk as you’ll need to do your own KYC and potentially offer proof of funds in the future. You should also check that your counterparty is a legitimate trader and not a scammer as there are incidents of people being robbed during these “trades”.

Are there OTCs for Altcoins?
There are OTC services for altcoins and even coins that are not yet listed on exchanges. These OTCs will function similar to a matchmaker – matching sellers and buyers of a particular asset. One such example is Silverway – an OTC deal platform and deal aggregation platform.

How do I find out the volumes handled by OTCs?
OTCs are not obliged to provide trading data such as daily volumes, prices, or order books. However, some OTCs provide annual reports or blog posts that contain aggregated volume data.

What should I look out for when choosing OTCs?
Security and legitimacy are very important with thinking of which OTC desk to trade with, especially since huge sums of money are involved. Prospective customers could for example, check if the OTC desk is registered with the relevant government authorities, ask any peers if they have traded there before and their feedback, check online reviews or social media, or even go to their physical offices to make inquiries before signing up and trading.
May 29, 2020