Silent crypto swaps: What are OTC desks?

Not every cryptocurrency trade shows up on public records. Centralized and decentralized exchanges (CEXs and DEXs) handle most trading activity, but there’s a quieter corner in the crypto market where many large transactions happen off the books: over-the-counter (OTC) trading desks. 

OTC trading desks give select traders and institutional investors a private, personalized way to buy and sell digital assets. And while everything happens behind closed doors, the high-volume deals that OTC trading desks process can have a major impact on market liquidity and volatility – or avoid moving the market altogether.

So, why are OTC desks so secretive but also so significant to crypto? In this guide, we’ll explain how they work and why many of the market’s biggest players choose them over traditional exchanges.

What’s a crypto OTC desk? 

Crypto OTC desks are trading service providers that specialize in securely handling large-volume transactions away from public order books. Similar to traditional crypto spot exchanges, an OTC desk connects buyers and sellers to facilitate direct transfers of digital assets. The big difference between OTC desks and exchanges is privacy. Deals on an OTC trading desk don’t appear on the exchange feed. Everything happens privately and usually with high minimum trade sizes. 

Because of that discretion and size, OTC trading desks are a go-to for institutional investors, traders, and high-net-worth individuals (HNWIs) who move serious crypto volume. Many of the best crypto OTC desks – Coinbase, Kraken, and Gemini, for example – come from established brokerages with years of experience in the digital assets market and handling cryptocurrency transactions at scale.

How do OTC desks work for crypto trading? 

Every OTC trading desk operates a little differently, but most follow a similar process. First, a prospective trader or institutional investor signs up with the OTC desk, which includes providing know-your-customer (KYC) information: full name, address, and a photo of a valid government-issued ID. 

Once approved, the client can send a request to buy or sell a specific amount of cryptocurrency that meets the trading desk’s high-volume minimums. The desk reviews the order and opens negotiations, working directly with a counterparty until both sides agree on a fixed market price. 

After that, the client transfers either crypto or fiat to the OTC trading desk and receives the agreed amount in return, which goes directly to a linked bank account or cryptocurrency wallet. The OTC trading desk manages liquidity, settles the deal securely, and keeps the details off public order books, which gives buyers and sellers more privacy and less slippage than on traditional crypto exchanges. 

Why are OTC desks important in crypto?

OTC desks are a big step forward for crypto market infrastructure. They further fuel the adoption and mainstream appeal of digital assets. And they make it easier for high-net-worth individuals (HNWIs), companies, and institutional investors to move large amounts of cryptocurrency quietly and efficiently, which unlocks significant liquidity without causing waves on public crypto markets. 

Besides making cryptocurrencies more accessible and attractive to large investors, OTC crypto trading desks address the volatility of digital asset prices. The OTC market can’t completely eliminate price swings, but it does shield the broader crypto market from the noise that massive transfers typically cause. By keeping high-volume trades off public crypto exchanges, there’s less of a risk of sudden supply or demand shocks pushing market prices up or down in a single day. 

Benefits of using the crypto OTC market 

OTC desks do more than keep large crypto trades out of public view. Privacy is a big draw, but these trading firms also make crypto markets more efficient and less prone to drastic price swings.

Reduced market impact

When someone places a high-volume order on a regular crypto exchange, it can spike supply or demand and move the market price fast. OTC desks help avoid that. Not only do they bring more stability to the crypto market, they ensure buyers or sellers lock in the execution price they want without suffering from slippage.

Privacy and discretion

Blockchain is transparent by design, which makes it easy for analytics firms and other market participants to trace big transactions. For institutional investors and individuals who’d rather not have their crypto holdings on display, OTC trading desks are a much more discreet option.

Personalization

Many OTC trading desks operate like white-glove services. Clients usually get dedicated support throughout the exchange process and can negotiate terms for buy and sell orders, flexibility that traditional spot exchanges don’t offer. 

Faster execution

Traditional crypto exchanges often struggle to handle large trades because their order books lack the liquidity to fill them at one price, and that leads to slippage. In contrast, OTC desks tap into a vast network of liquidity providers, which allows them to settle high-volume transactions quickly without splitting big orders into multiple smaller ones. 

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Risks of crypto OTC trading desks  

Despite their many advantages, OTC trading desks aren’t risk-free. Before working with an OTC trading firm, it’s important to consider potential drawbacks that could lead to a deal that’s not so ideal. 

Counterparty risk

Even with safeguards like escrow and legally binding agreements, there’s always a chance one party in an OTC trade might not deliver as promised or may cause delays. Traders have to trust in the trading desk’s reputation to execute fair trades and manage disputes, should they happen. 

Limited transparency

Because OTC trades happen off the order books, there’s no public proof that a transaction occurred. That can make it difficult to verify a counterparty’s credibility and complicate reporting and auditing crypto transactions.

Regulatory uncertainty

The lack of transparency in OTC markets raises questions about compliance and reporting requirements. Depending on the jurisdiction, investors may face additional legal hurdles when using OTC trading desks compared to regulated exchanges.

Potentially higher costs

OTC desks aren’t free. While they help traders avoid slippage, the service fees or spreads they charge to facilitate high-volume trades can be significantly more than the costs of standard crypto trading platforms. 

Who uses crypto OTC desks? 

Many crypto traders think OTC trading desks are only for millionaires or billionaires – the so-called crypto whales. While these desks often work with clients who hold massive amounts of digital assets, they’re not exclusive to early Bitcoin (BTC) or Ethereum (ETH) investors. Here’s who commonly uses them: 

High-net-worth individuals

Whether wealth comes from years of holding Bitcoin or other ventures, OTC desks allow HNWIs to discreetly buy and sell large crypto positions. They get privacy, negotiated rates, and personalized white-glove service that’s hard to find on standard crypto exchanges.

Institutional investors

Hedge funds, family offices, and other institutional investors often turn to OTC trading desks when they want crypto exposure. Handling big transactions through OTC avoids volatility in public markets, which makes it easier to manage liquidity for multiple clients.

Businesses

Following the lead of companies like MicroStrategy, more businesses are adding crypto to their balance sheets. Those that accept cryptocurrency payments or use digital assets in operations often rely on OTC trading desks to move large sums without triggering slippage or market risk.

Entrepreneurs

Web3 founders and crypto industry movers sometimes use OTC desks to quietly raise or deploy capital. These desks make it easier to access liquidity and negotiate large deals securely without public exposure.

Crypto miners

Professional crypto mining operations hold substantial BTC and other digital assets in treasury. When they go to sell a portion, OTC trading desks allow them to do so efficiently without disrupting the underlying cryptocurrency’s market price. 

Keep crypto transfers transparent with CoinTracker 

Whether you’re trading on a crypto exchange or moving big orders through an OTC trading desk, you need a clear, detailed record of every transaction to stay tax-compliant. CoinTracker handles it for you.

Link your exchange APIs and add your wallet addresses, and CoinTracker automatically records your entire crypto transaction history. It calculates cost basis, flags special activities like staking or yield farming, and generates IRS-compliant forms to send to your CPA or import directly into TurboTax or H&R Block.

Download CoinTracker’s Portfolio Tracker for free and see why millions trust us to simplify their crypto taxes. 

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.