Bitcoin OTC trading

As much as half of all crypto trades take place in secret, behind closed doors.

The trades are executed quietly, with billions of dollars worth of crypto changing hands outside the main exchanges. According to many experts, including Binance CEO Changpeng Zhao, this means the crypto trading market is twice as big reported.

Welcome to the mysterious world of OTC crypto trading, or “over-the-counter” trading where bitcoin “whales” buy and sell ludicrous amounts of crypto between each other.

Very little is known about OTC trading, how it works, or its true effect on the market. 

During my research, I spoke with OTC expert Mark Sapolinski, who has organized bitcoin OTC deals since 2012 and currently manages an order book worth about $2 billion. 

During our energetic conversation, I gained several precious insights into the mysterious world of over-the-counter trading that I’m now about to share with you.

What Is Bitcoin OTC Trading?

In a nutshell, OTC, or “over-the-counter” trades are private deals for buying and selling cryptocurrencies. They are not done through regular exchanges and are therefore not displayed in any public order book, which means increased privacy for both the buyer and the seller.

Some estimates suggest that the volume of crypto traded on OTC markets is two-three times larger than regular exchanges.

OTC Transactions are Private and Have Lower Impact on Market Price

Apart from the improved anonymity, another reason to trade in this way is to minimize the impact on the market itself.

Trades worth millions or even billions of dollars would inevitably move the price in the opposite direction of your need. Nowadays, it appears that a large share of the OTC volume comes from only a few hundred massive transactions. 

As a result, many “whales” seek private deals that will not affect the market as much as deals on regular exchanges.

Further reading: Who are the Bitcoin Whale? (Criminals, Traders, & Early Adopters)

How are OTC Trades Executed?

At the moment, there are two different ways to handle OTC transactions: through a middleman or by using big online platforms. 

OTC brokers, the men in the middle, have their very own network of crypto investors and cryptocurrency sellers. They constantly keep themselves up to date with who wants to sell or buy coins, how much they want to deal with and when they want to pursue the deal.

It’s a very personal, bespoke service.

In the end, they want to match a crypto buyer with a crypto seller and take a commission for the service. Unfortunately, dealing with OTC brokers usually takes a lot of time. Establishing trustful relationships is a key element of conducting business in this way.

… Or Through an Online Platform like Circle

On an OTC platform, the intermediary will be replaced by a software platform. Think of it like Coinbase for the uber-rich. Perhaps the best-known crypto OTC platform is Circle, but even Coinbase has quietly opened an OTC trading desk.

Circle OTC bitcoin trading

In this method, algorithms will match buyers and sellers, and trades will usually be conducted over the platform. Just like with OTC brokers, the platform will take a fee for setting up the deal. 

The main downside of using a platform instead of a broker would be the omnipresent risk of a hack, as we have seen in the past. 

Additionally, one should always make sure that the platform is compliant with the current regulations, such as KYC and GDPR, since authorities might crack down on it otherwise.

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The History of Bitcoin OTC Trading

Many crypto people believe that engagement in OTC deals requires them to be a high net-worth individual, or, in other words, a whale. 

You might be surprised to know that one of the most popular and oldest OTC markets is actually for the small fishes: LocalBitcoins. The popular platform matches local bitcoin buyers and sellers since 2012 and still serves more than four million users worldwide, as recent reports have shown.

Especially in the first few years of Bitcoin’s life, OTC transactions appeared to be the most common way of trading the digital currency. “At this time, OTC deals were done completely different than now,” says Sapolinski. 

localbitcoins logo

From Small Trades to Multi-Million Dollar Deals

From 2013 to 2016, the number of Sapolinksi’s clients ranged from 1,000 to 2,000 clients a month, but with rather small order sizes of $1 to $50,000 dollars. As Sapolinski later explained. “I remember a general negative stigma for doing Bitcoin transactions in these years. There were not many questions asked.” 

2017 would be the year that brought change to the cryptocurrency market. Easier methods of buying and selling small amounts of bitcoin cropped up, like Coinbase and Binance.

Meanwhile, with continuously rising prices of bitcoin, there was suddenly a greater need for larger purchases, larger amounts. The new, vastly wealthy bitcoin whales needed a place to trade.

The OTC space changed from quantity to quality. Fewer clients, bigger transactions. However, with great power comes great responsibility. “As Bitcoin was now traded in unbelievable monetary value, it also became a liability to report big transactions to banks and financial authorities,” Sapolinski mentioned.

How Does a Bitcoin OTC Transaction Work?

As explained, the most popular way of conducting large OTC transactions during the past few years was using OTC brokers. 

According to Sapolinski, bitcoin and other cryptocurrency OTC trades usually follow a traditional discount model. Using an example name of “Bob,” here’s how it works:

Bob wants to sell a large amount of bitcoin. He’ll offer a discount of about 3% against the market price to do so. In order to make such a transaction, Bob will first look for an intermediary, an OTC agent, that he can personally trust. 

Bob needs to provide his trusted intermediary with a proof that he actually owns the bitcoin he wants to sell, which is also known as a “Satoshi Test.” Satoshi Tests can be done by conducting a small transaction from a wallet with the alleged funds.

At the same time, there is a buyer somewhere hoping to find a person willing to sell their precious coins or tokens. 

That person, let’s call her Alice, will also find a trusted intermediary herself. She will also provide proof of funds. Both intermediaries will now find each other through their complex black book of contacts. They’ll start negotiating with each other. 

However, there is still an inherent problem with every OTC deal that is done through two different middlemen: the buyers and sellers are often not able to trust each other.

Can You Trust an OTC Deal?

This is where the “OTC Tango,” as Sapolinski calls it jovially, starts. Both parties are expecting the information they need from the other party, which could either be a proof of coin or a proof of funds. 

The problem is: they will only provide each other with this highly private information if they feel absolutely comfortable in trusting each other. 

In many cases, buyers and sellers are separated by several thousand miles, sometimes there’s even a language barrier. It is now the time to find a base of trust, which can be pretty hard if you are not able to properly meet. 

This can usually be achieved by leveraging the network of colleagues that brokers already have a trustful relationship with. Otherwise, trust can also be established through honesty, transparency and the documentation that is provided.

What About OTC Platforms Like Circle?

Although working with intermediaries has been the crypto OTC method of choice for most of the last decade, it seems like OTC platforms are steadily gaining more influence and power.

This may be due to the fact that large institutional investors would most probably prefer using an OTC platform rather than working with middlemen. 

Many financial heavyweights fear the severe trust issues that come with regular cryptocurrency OTC deals. In order to provide a suitable solution for such clientele, many companies started working on fully regulated and secure electronic bitcoin OTC exchanges. 

As explained, Goldman Sachs-backed Circle is probably the best-known cryptocurrency OTC desk. In April this year, Circle Trade told Business Insider that their minimum transaction size moved to $500,000, with the average trade being valued around $1,000,000.

Another interesting project is Republic Protocol. The team is currently building the world’s first decentralized dark pool, which aims to be a fully anonymous OTC platform, expected to work with smart contracts, and hence eliminates any possible trust issues for its users.

Republic Protocol bitcoin OTC trading

What Impact Do OTC Transactions Have on Bitcoin Price?

While unlisted transactions should theoretically not affect prices of cryptocurrencies, the past has clearly shown that it doesn’t work that way in the real world. 

Imagine a whale that is sitting on thousands, if not tens of thousands, of bitcoins that he wants to sell. Due to the incredible amount of bitcoin he wants to sell, he will contact multiple OTC brokers to find him one or more trusted buyers. 

The word about this deal will slowly spread and some bigger investors might now start to sell their bitcoins in order to participate in that deal and obtain bitcoin at a steep discount. 

As you see, OTC deals might have an impact on the price of bitcoin, but they could also be completely excluded from it. 2018 was undoubtedly a year that brought many innovations to the world of crypto over-the-counter trades and it remains to be seen how the space develops in the years to follow.

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Nasdaq bitcoin futures Wall Street

Forget the plunging prices, Wall Street is still thirsty for bitcoin and cryptocurrencies.

According to Bloomberg, Nasdaq will launch a trading platform for bitcoin futures contracts as early as the first quarter of 2019.

The news comes as ICE, the parent company of the New York Stock Exchange, prepares to launch its own bitcoin futures exchange called Bakkt. 

It’s a sign that institutional players and Wall Street see strong demand for bitcoin trading even amidst the 80% price drop.

What are Nasdaq Bitcoin Futures?

After hinting at the prospect late last year, Nasdaq will finally launch a platform for trading bitcoin futures contracts in early 2019.

The news was reported by Bloomberg and confirmed by Nasdaq partners, VanEck, at Coindesk’s “Consensus” conference yesterday.

The launch will be the first in a range of institutional crypto trading solutions.

What’s a Futures Contract?

A futures contract is a simple way for traders to bet on the future price of an asset, like bitcoin.

It works by agreeing to purchase the asset for a predetermined price at a specific date in the future. 

For example, I agree to buy bitcoin for $6,000 on December 22nd.

If the price of bitcoin is much higher than $6,000 on the date of expiry, I get my bitcoin at a huge discount to the market. I can then turn around and sell it at market value for a big profit.

Of course, it can work the other way too. If bitcoin has fallen far below $6,000, I’m still obligated to pay the agreed price (or I can exit the trade before the expiry date). 

Futures contracts are used by traders to make future bets on price rises (or falls), and they exist for most market assets, like oil, gold, and stock market indices.

Nasdaq Bitcoin Futures: “We Ran A Few Extra Miles With [Regulators]”

The news is a long time coming after the first whispers emerged in 2017. During that time, Nasdaq has been working closely with US regulators, the Commodities Futures Trading Commision, to tighten the screws.

VanEck’s director of digital asset strategy, Gabor Gurbacs, explained: 

“What I’d like to point out is we ran a few extra miles working with the [Commodity Futures Trading Commission] to bring about new standards for custody and surveillance.”

Nasdaq already operates a strict surveillance system on its exchange to pick up signs of manipulation such as wash trading. By integrating this into a crypto trading system, it will give institutional investors a great deal more confidence to trade and invest in bitcoin.

Settled with Bitcoin?

One thing we don’t yet know about the Nasdaq bitcoin futures is how the contracts will be settled.

The only bitcoin futures contracts on the market right now (available via CBOE and CME Group) are settled in cash. So when the futures contract expires, the trader pays (or receives) cash.

The much-hyped Bakkt futures contracts, which are slated for launch in January 2019, are unique because they are settled in bitcoin.

Nasdaq nor VanEck have confirmed how their product will operate.

Wall Street is Coming: Bakkt Launch in January 2019

The Nasdaq futures announcement comes shortly after the hype around Bakkt’s futures contracts.

Bakkt is a cryptocurrency exchange platform, backed by the parent company of the New York Stock Exchange. To put it another way, it’s a big deal.

Bakkt will also facilitate bitcoin futures contracts settled with real bitcoin.

Originally slated to launch early December, the Bakkt launch has been pushed back to January 24th, 2019. The delay was caused by the large “volume of interest.”

2019: a Big Year for Bitcoin?

The first quarter of 2019 is lining up to be huge for crypto. Bakkt is scheduled to launch in January. The Securities and Exchange Commission will make a decision on the much-anticipated bitcoin ETF proposal, and Nasdaq’s futures market will launch.

If 2018 was the year of slow, painful regulatory issues, 2019 could be the year it all comes together.

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how to evaluate a cryptocurrency

I’ve been in the blockchain industry for a year and a half now. I started as an Initial Coin Offering (ICO) marketer, but the rush of investing and gains potential quickly became contagious. 

So, I dove deep into learning about it and was on the relentless path of discovering all those new exciting crypto assets. At some point, things got crazy, and, as a big fan of diversification, I became a happy holder of more than 300 various tokens.

Of course, many of my decisions were poor. But all those mistakes allowed me to come up with a clear and straightforward framework for analyzing tokenized assets more efficiently and finally properly manage my risks. 

For some time, earlier this year, I also worked at a venture capital fund as a crypto asset analyst utilizing this very same approach that I am about to share with all Block Explorer readers. 

Don’t get me wrong, even the smartest people on Earth, including the most influential investors in Silicon Valley, have made mistakes. Just think of those who passed on Airbnb or Uber or those who poured money into Theranos. 

Fasten your seatbelts. And let us introduce you to our GGECTRA crypto assets quick evaluation approach. 

GGECTRA is an abbreviation and stands for:

Growth potential

Github activity





Average score

Now, let’s break the concept down into the smaller chunks. 

1. What’s the Growth Potential?

The first question to ask yourself is: can this project scale up? Does it have the potential to be used by millions of people or businesses? Can it grow from a small, experimental idea into a true use-case?

The next question is about competition. Are there similar projects out there having success? If so, what does this crypto asset do differently that could tap into that growth?

Finally, ask yourself how much revenue and profit this project can generate. Many startups don’t make a penny in profit for years, but is there a clear business plan for growth and revenue?

Evaluate the potential growth opportunity from 1 to 5, where one is poor, and five is excellent.

2. The Project’s Github Activity

Many of the blockchain-based projects are supposed to be transparent and open source. And they should be. Since this new way of investing is open to thousands of amateur investors from all around the world, the very least they deserve is some transparency to track on what’s going with their funds.

Thankfully, many of the projects in the field are on board with that, and the source codes are freely available on GitHub. One of the best ways to track GitHub activity for crypto projects is Cryptomiso. 

It ranks the projects that are most active and provides visitors with important stats (like source code, programming language, number of contributors, etc.), and, of course, directs you to the project’s Github directly. 

Let’s say we want to estimate what’s going on with Aion, the project that is building a product for solving famous blockchain scalability and interoperability problems. Looking into the team’s Github account, we can see that there is a lot of action going on and new changes are made even as I am writing these words. That’s an excellent sign. 

On the contrary, if you came across the project with little or no Github activity, you can rate it as “poor” with no hard feelings. 

Github activity

3. The Crypto Project’s Execution

I evaluate this metric based on the milestones achieved and judging by the company’s roadmap execution. Following social media accounts and corporate blog updates is a tremendous help in this case.

If you are out of time just briefly check the Twitter feed and see what kind of updates are posted. 

If you see tweets mentioning development reports, new impressive partnerships and delivering yet another milestone from the roadmap – that’s a bold “yes!”

But if there are simply “thank you for being with us” messages, new exchanges listing announcements, or some very distantly-related quotes and reposts from big Twitter accounts, that’s not a good sign.

4. How to Rate the Crypto Project’s Community

I’ve discussed the importance of crypto communities in a previous post. A good community can make or break the success of a particular asset or project.

Evaluating this metric is pretty straightforward. Browse the project’s social media accounts and check the followers. Some things to be aware of: the project might have a pretty decent following, but not so much engagement. That’s not good.

Also, the large volume of retweets and likes might indicate that the company has generous bounty rewards. So, while making your research, don’t forget to scroll through the comments and see if those are making sense. Don’t be too excited over bare numbers. 

For instance, the Aion Twitter account has almost 71,000 followers, but engagement rates are not very high. So, I’ll rate it as “good”, not “excellent.” 

Crypto project twitter activity

5. How to Evaluate a Crypto Project’s Team

When evaluating the team, I try to look first and foremost at the Chief (C)-level employees and their expertise: Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Technology Officer (CTO), etc. 

I browse through their LinkedIn profiles and see if they have relevant experience and connections in the industry that they are trying to disrupt. 

Since I’ve been traveling around at some conferences in the field, it’s relatively easy for me to evaluate how well connected the person is. And, in some cases, even the working ethics of the particular person. I scan through the list of shared connections and make my judgments. 

If you don’t have that luxury yet, you can browse through the person’s endorsements. Let’s say Andreas Antonopoulos pats someone’s shoulder for their knowledge of bitcoin, then it’s a winner.  

Let’s look into the STACK! project. The company is trying to build another cryptocurrency with the goal of mass adoption, with a great wallet and easy crypto payments right from someone’s smartphone. Not a unique aspiration, but STACK!’s Chief Executive Officer has immense experience in the field. 

linkedin connections blockchain

And quite a lot of quality connections in the blockchain department. You get the logic. 

Linkedin activity

One thing to remember when assessing the team: just as with social media following, quantity doesn’t mean quality. On numerous occasions, I came across profiles that blinded me with impressive numbers of endorsements, just like the profile on the picture below (and let’s keep the name and the project a secret). 

However, digging deeper into the list of endorsers it’s obvious that those are not real. In some cases, if I have my doubts about the team member, I would also reach out to former colleagues to clear up my reservations. 

6. How to Measure the Risk of Cryptocurrency Investment

As for the risk evaluation, it’s a mix of various factors that you have to keep in mind, and this list might be adjustable. For example, I look into tokenomics, especially at the token’s supply and distribution. 

Huge supply often means less room for growth. And if a large chunk of all tokens reserved are for the team with no mention of the vesting period (how long the team must wait for scheduled token distributions) – it’s a huge red flag. Anything more than 10% raises some serious question marks for me. 

Then there’s the legal structure and licensing. Is there zero clarity? More questions.  

Overall it’s a very important, but somewhat subjective metric. And there’s a lot to process, based on your own risk appetite and investment strategy.

Jumping into the project with the sketchy team? Risky! 

Investing even if there was no development activity? Risky! 

And so on, you’ve understood the reasoning. 

7. How to Calculate the Average Score?

The average score is pretty much self-explanatory: add up the values of all the metrics and divide by six, the number of evaluated parameters. 

You will end up with a number you can use to compare against other projects. Yes, it will be somewhat subjective. But you still have the logic behind it rather than buying assets based on a hunch. Basing your judgments on such numbers will save you from making any snappy decisions. Just stick to the process and try to be less emotional. 

Do you have any special tricks to identify great investment opportunity when evaluating a crypto project? Go ahead and share it in the comment section below.

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This time last year, everyone was rushing to predict how high bitcoin would go. We had outrageous price predictions of $200,000 per bitcoin and even $1 million.

Now, the current trend is predicting the bitcoin bottom. Considering most price prediction were wildly wrong, it’s safe to assume most people predicting the “bottom” might also be off the mark.

So how do you really tell when the price of an asset has bottomed?

Here are four ways traders use to identify when a market is bottoming out.

Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.

1. Double bottom chart pattern

The classic sign of a market reversal is when a “double bottom” is formed on a market’s chart. It’s also called a “W pattern” because it resembles the shape of a W. Here’s what it looks like in chart form:

Double bottom chart
Source: Investopedia

It typically means that sellers have forced the price down to the lowest point. They tried to break it once and failed. They tried again, but the buyers proved stronger for a second time.

It signals the point where buyers are stronger than sellers and a reversal can begin.

Even if you see a double bottom pattern forming, it’s usually best to wait until we complete the full “W” shape and break out above the W, as indicated on the chart above. That would represent a true comeback.

Bitcoin is in the process of forming a short-term double bottom pattern, but it is not yet complete.

Bitcoin double bottom forming?
Source: CoinMarketCap

Of course, this chart pattern is no guarantee of a reversal. We need to look deeper into the activity of buyers and sellers. And that means taking a closer look at volume.

2. Lower volume on downward moves

In the simplest possible terms, a reversal takes place when more people are buying bitcoin than selling it.

So we need to look for signs that sellers are getting weaker and buyers are getting stronger. That means looking at volume.

“Volume” in this case refers to how much bitcoin is bought and sold in a given 24 hour period.

At the moment, more people are selling than buying. So the volume on downward moves is generally much bigger. 

More people are selling = bigger volume on downward moves.

What you’re looking for is that trend to change. We’re looking for lower volumes on each downward move.

That would indicate that the number of people selling is getting smaller and the downtrend is coming to an end.

Unfortunately, we’re not yet seeing that with bitcoin. As Max Boonen, founder of B2C2 told the Financial Times during the latest selloff,  “[Trading] volumes have been quite high in this move lower.”

To gauge the volume of buyers and sellers, you’ll need to look at more technical charts than the basic CoinMarketCap price charts. 

3. Higher volume on upwards moves

Next, we need to see more buyers coming into the market. 

In other words, we should also begin to see volume increase on the upward moves. That would indicate that more sellers are rushing in to buy bitcoin.

This is the simplest depiction of a market reversal: more people are starting to buy than sell.

4. Negative news headlines

This one is less of a technical indicator, but it’s a psychological sign that a bottom is coming.

The press tends to follow the crowd and track the broad sentiment. So if news headlines (especially in the bigger media outlets outside the financial and cryptocurrency world) are turning negative, it means most people are now fearful.

Anyone that does want to get their money out will probably do so after the mainstream negative headlines, leaving only the people willing to hold on.

It’s safe to say we’ve reached that moment with bitcoin. Here are just a handful of major headlines over the last week:

Bloomberg: Bitcoin’s Deepening Crash Now Approaches Its Worst Bear Markets

The Guardian: Only a Fool Would Have Bought Into Bitcoin Last Year. So Guess What I Did?

New York Post: The Bitcoin Pyramid Scheme Continues To Collapse

CNBC: Long, Dark Winter Ahead For Crypto

So, Has Bitcoin Bottomed?

According to these classic criteria, not yet. Although some of the signs are beginning to appear, it’s too early to call a true bottom. Volume is still heavy on the downward falls and the classic “double bottom” has not fully emerged.

On top of all that, technical analysis from charts isn’t 100% effective, and even less so in the new and volatile crypto markets.

In other words, it’s very difficult to predict a bottom and you should take any claims with a great caution.

Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.

pay taxes with bitcoin

As of today, Ohio becomes the first state in the US to allow businesses to pay taxes with bitcoin. Ohio edges out Arizona, Illinois, and Georgia which have seen similar initiatives fail to pass state legislatures.

The move is a stamp of legitimacy from the US authorities for a cryptocurrency that has, until recently, been derided as a mode of payment only useful for criminals, speculators, and money launderers.

We should point out that the government itself won’t directly accept or process bitcoin. It will be converted through a third-party payment provider, Bitpay, and the taxes will still technically be paid in dollars.

Individual Taxes to Follow

Businesses operating in Ohio will be the first to benefit from the new initiative. The state of Ohio has launched a new website, where businesses can register and begin the tax payment process with bitcoin.

The site lists 23 taxes that are currently payable in cryptocurrency, including employee withholding taxes and sales taxes.

While it’s not yet possible fo individual filers to pay with bitcoin, the state of Ohio is working on it, as well as the potential to accept other cryptocurrencies.

“I do see [bitcoin] as a legitimate form of currency,”

Ohio Treasurer Josh Mandel is one of the few government voices to publicly champion cryptocurrencies. Speaking to the Wall Street Journal (paywall), he said “I do see [bitcoin] as a legitimate form of currency,” granting it some authority in the eyes of government.

Back in August, Ohio passed a law that legally recognized blockchain data, while Ohio speaker Ryan Smith confirmed Ohio’s grand plans: “because this is so new and this is just beginning to take shape, we can position Ohio out front.”

You might also be interested in: A Giant Blockchain Town is Being Built in the Nevada Desert

No Legal Status, Yet

It’s important to note the move does not give bitcoin any legal status. In order to accept the payments, Ohio will use a third-party payment provider, BitPay, to convert bitcoin to US dollars. In other words, the state will not process or hold bitcoin itself. The taxes are still technically paid in dollars, just routed through a third-party.

While this is a stamp of approval for cryptocurrencies, it does not mean the government accepts or processes bitcoin directly.

Other States to Follow?

Ohio has kicked down the door and other states may soon follow suit. The Arizona Senate approved a similar bill earlier this year, but it was knocked back by the House of Representatives.

Representatives in Illinois also submitted a proposal to accept bitcoin back in February, while two state senators in Georgia proposed a similar bill in early 2018.

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