Recently, I’ve noticed an interesting phenomenon—more and more people are discussing various ways to trade Bitcoin, especially over-the-counter (OTC) trading. Bitcoin has been around for 15 years now, and trading methods have become quite diverse, from direct coin purchases to the emergence of OTC trading platforms. Each method has different use cases and logic behind it.

First, let’s talk about why OTC trading exists. In recent years, cryptocurrencies have experienced significant price swings, recently breaking above $70k again. But before that, global inflation and U.S. interest rate hikes caused many individuals and institutions to pull back, and mining electricity costs also soared. In such an environment, Bitcoin’s store-of-value properties are repeatedly emphasized by the market. Therefore, understanding different trading methods is really important for participants.

What is OTC trading? Simply put, it’s buying and selling outside of centralized exchanges’ auction markets, through agents negotiating prices. This OTC trading platform model has several obvious advantages—high privacy, no restrictions on trading hours, and price negotiations that won’t cause large market fluctuations. It’s especially useful for large transactions because a single abnormal order on a centralized exchange can trigger market volatility and price pressure. But OTC trading is different; transactions are completely hidden outside the market.

However, risks do exist. These platforms are usually unregulated, and if disputes occur, investors’ rights are hard to protect. Counterparty risk must also be considered—the platform only provides a communication channel; if the other party is a scammer or hacker causing losses, the platform isn’t responsible. In my impression, Asia’s largest OTC trading platform, OTCBTC, was founded in 2012 and announced the closure of services in China and 10 other countries in 2019. Since most of its clients were in China, that was like losing its lifeline. Later, there were reports of the founder embezzling funds, and lawsuits are still ongoing. This is a real-world example of platform risk.

OTC trading also has issues like lack of price transparency and information asymmetry. But such markets are necessary, especially for large asset transactions, to stabilize the market and increase liquidity.

The operation isn’t very complicated. Brokers or intermediaries connect buyers and sellers, charging a fixed fee. Investors deposit funds and Bitcoin into virtual accounts on the platform, inquire and quote prices, and the system matches and executes trades. After the transaction, the platform deducts fees and sends transaction details to your crypto wallet. The platform itself also holds certain reserves of Bitcoin and cash.

What OTC trading platforms are available today? LocalBitcoins, founded in 2012, is the largest global platform, with a sound regulatory system, trust-based fund protection, and seller credit ratings and transaction records for reference. Its fee is free for ads, and sellers pay 1% after successful trades. SFOX, established in 2014, uses algorithmic trading to execute large orders across multiple platforms, with proprietary sniping algorithms that can quickly transfer large amounts of Bitcoin by executing hidden orders. Circle, founded by Jeremy Allaire in 2013, issues the USDC stablecoin, supported by institutions like Goldman Sachs and Bitmain, with offices in London, New York, Hong Kong, and Boston, and high trading volume. There’s also Mitrade, offering CFD (contract for difference) trading, regulated by Australia’s ASIC, allowing two-way long and short positions and adjustable leverage.

Should you consider OTC trading? If you need to trade large volumes or have customized requirements, it’s worth considering. But for most investors, it’s recommended to trade on major exchanges. However, after the FTX collapse in recent years, many people are wary of unregulated exchanges, which is understandable.

If you want to participate in Bitcoin price movements, CFDs are also an option. As derivatives of OTC trading, they are easy to trade and active but are more suitable for professional investors with specialized knowledge. Whatever method you choose, remember that trading involves risks—that’s an eternal premise.