Inside the Competitive World of OTC Bitcoin Trading

Inside the Murky World of OTC Bitcoin Trading

If you work in cryptocurrency and are a member of Linkedin, you’re probably familiar with OTC bitcoin brokers. They’ll message you, out of the blue, asking if you know any private sellers, and will offer to set up a deal for your mutual benefit. The majority of these men (for they are always men) are genuine in their intentions. This does not disguise the fact, though, that BTC brokers are little more than sharks circling the same prey.

Also read: Research Paper Finds Transaction Patterns Can Degrade Zcash Privacy

Brokers Outnumber Buyers and Sellers 100:1

Anyone can become a bitcoin broker: change your Linkedin title to “OTC Bitcoin Broker” and you’ve done it. Brokerage is a job that, like most cryptocurrency roles, outside of development, requires no formal qualifications. Just as anyone can call themselves an ICO advisor, anyone can assume the mantle of bitcoin broker, consigning them to start spamming Linkedin users for buyers and highly coveted sellers.

To understand the viral spread of brokers, it’s necessary to understand the conditions that led to large OTC sellers coming about. Back in the day, it was possible to acquire a lot of bitcoin for very little money. A lot of people mined it; some made it from trading shitcoins; and a few simply bought a bunch of BTC and then had the presence of mind to hodl, through thick and thin, for years.

Inside the Murky World of OTC Bitcoin Trading

Most brokers will take on anything from 500 BTC upwards as an OTC deal, often operating on behalf of family funds seeking to acquire bitcoin in bulk. But what brokers are really chasing is the big one – deals of 10,000 BTC or more, in which a brokerage commission of 3% is worth millions of dollars. The number of bitcoin addresses containing between 10k and 100k BTC sits at little more than 100, however, and while some sellers have their coins distributed across multiple wallets, bona fide whales looking to sell are rare. Because the rewards for finding one are so great, a swarm of brokers, each chasing “the big one”, has proliferated.

How an OTC Deal Works

Inside the Competitive World of OTC Bitcoin TradingSellers want to sell OTC to avoid the sort of slippage that occurs when unloading large amounts of BTC on an exchange. Whales also value their privacy, and while they are still required to undergo KYC to complete an OTC deal, their identity is only going to be shared with the broker, their attorney, and the escrow service. Normally, even the buyer won’t know the identity of the person they are buying the coins from. The seller provides “proof of satoshi” by moving a fraction of a bitcoin from the wallet they control, the buyer provides proof of funds in the form of a bank certification of deposit or credit and a non-disclosure agreement (NDA) and a letter of intent (LOI) are signed. The process usually works as follows:

  • Attorney for the buyer prepares LOI detailing terms including BTC purchase amount, commission, net discount and other details
  • Proof of funds is provided within a specific timeframe of signing the LOI. A screenshot is not accepted: cryptographically provided proof of coin, sent via the blockchain, is required
  • Master Fee Protection Agreement as well as Draft Purchase Agreement and Escrow Agreement may then be circulated and signed by all parties
  • Money is placed in escrow, escrow verifies receipt of funds and BTC is sent to buyer’s wallet
  • Transfer may be done in full or in tranches depending on the agreement

Given the desire of buyer and seller to preserve their privacy, and the need for each party to be connected in the first place, brokers play a vital role. But due to the lucrative prize at stake, it’s a job that attracts a lot of chancers – and a lot of Linkedin requests, much to the chagrin of other cryptocurrency users.

Have you been contacted by bitcoin brokers and do you think they’re a nuisance or an essential link in the OTC chain? Let us know in the comments section below.


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