OTC Trading vs Dark Pools

Everyone involved in cryptocurrency is well aware of how there are investors who control the market. These so-called “whales” do not rely on buying bitcoin through traditional means, though. Instead, they use different methods, such as OTC trading the dark pools. Both types of trading are designed to appeal to cryptocurrency whales, although both types of trading require a slightly different approach.

2. OTC Trading

When cryptocurrency whales are looking to buy and sell bitcoin, they will not use the regular exchange orderbooks like most of us do. Instead, they will use OTC markets, which are much larger and represent far more volume compared to traditional exchanges. Wealthy people want convenient access to bitcoin and other prominent cryptocurrencies, and OTC trading is their go-to solution.

The main reason for shifting to OTC trading is how regular exchanges cannot provide ample liquidity to accommodate the needs of cryptocurrency whales. Any trade above US$1m will attract a lot of attention and send a massive signal to the rest of the bitcoin trading community. It is not in whales’ best interest to alert others about whether they plan to buy or sell bitcoin and at what price.

One of the questions that remain is where these OTC markets can be found. We highlighted some of the possibilities in a previous article, although there are a lot of other companies out there providing such service. ItBit is by far one of the most popular bitcoin OTC trading platforms, and Binary Financial is high up on the list as well.

1. Dark Pools

Although we have highlighted the concept of a Bitcoin dark pool in a separate article a few weeks ago, a lot of people still remain unaware of dark pools. There are quite a few of these trading platforms around, as even prominent bitcoin exchanges run their own dark pool at times. Kraken is perhaps the biggest exchange in the Western world to provide such a service.

The primary use case of a dark pool is to find enough trading liquidity on an exchange without disrupting the regular order book. Placing multi-million dollar orders on the Kraken exchange would cause a widespread panic among both buyers and sellers alike. Using a dark pool, however, these trades will have no impact on the regular orderbook, while still being conducted through the exchange in question.

One thing traders need to be wary about is how the concept of dark pools is scrutinized by financial regulations. Financial institutions and banks using similar trading platforms have been penalized for unlawful trading activities. Even though these offerings are designed to stabilize markets at reduced costs, they remain somewhat of a thorn in the side of regulators all over the world.

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