How to trade Bitcoin over the counter

Privately arranged one-on-one cryptocurrency trade transactions

OTC/BTC refers to the private sale of Bitcoin without the involvement of a crypto exchange. Digital assets can be privately traded to maintain privacy, to avoid an impact on the coin market price (“slippage”), or to minimize transaction costs. In an #OTC trade, two parties trade directly 1-on-1 with each other, unlike on an exchange where orders are matched between buyers and sellers.   

Crypto exchanges and big platforms like Circle, Kraken, Genesis, Bitfinex, HitBTC, or Changelly are offering over-the-counter trades with private and personalized services on a principal desk or agency desk. Targeted customers are institutions and high net-worth individuals with the need to fill large orders that might be too disruptive if placed on open markets at the exchanges. These stakeholders have to be distinguished from private-to-private sales which base on individually negotiated sales and purchase arrangements.  

Off-market p2p transactions offer highly confidential and large quantities of crypto sales and purchases at below-market rates and crypto. Obviously, they need a careful risk assessment and risk mitigation measures. Different contractual arrangements have separate risk profiles. Price risk and counterparty risk can be minimized with a sophisticated structure. Illegality risks can result in a claim to unwind and reverse the bank transfer while the coin transfer is immutable. The funds can be blocked on the escrow account until a deep KYC investigation is accomplished. Other legal concerns or tax issues might require restructuring in the middle of the transaction.

Seven success-critical aspects for the gold-standard crypto OTC deal

#1. Ready, willing, and able: A particular market environment applies to a BTC/OTC transaction. Seller and buyer have specific expectations and requirements that need to be carefully aligned. On the one hand, there is a complex legal framework to comply with. The funds as well as the coins should be good, clean, clear, and of non-criminal origin. On the other hand, the flexibility that can be created through a smart and sophisticated design of the parameters, participants, trading desks, contracts, and jurisdictions must be exploited as best as possible.

#2. What you need to know: KYC/AML/CDD and other compliance requirements do not have to conflict with secrecy, confidentiality, privacy, and the justified desire to avoid crypto market turbulence. The transaction can be structured by strictly applying “need-to-know” principles. Under such restrictions, knowledge, possession of, or access to classified information is provided only as far as there is a need to know,  at the time when there is a need to know, and as long as there is a need to know.

#3. Payment: The OTC transaction requires an agreement (I) regarding the payment amount and currency, (ii) whether the funds are on a bank account, cash, or else, (iii) the location and jurisdiction of the funds, as well as (v) the title, control, and authority of the funds. The transfer can be done as a one-off payment or in installments, made directly by the buyer or through a middleman or payment agent, can be accomplished as bank transfer or in cash to an agreed place of delivery respectively handover location.

#4. Escrow is a legal concept describing a financial instrument whereby the digital assets or escrow money is held by a third party on behalf of the buyer and the seller that are in the process of completing the OTC transaction. Crypto or fiat escrow agents hold the funds and/or the crypto until receiving appropriate instructions or until the fulfillment of predetermined contractual obligations. The escrow provider must be acceptable to both parties in terms of financial safeguards, contractual fidelity, the regulatory framework under which it operates, and the contractual arrangements. 

#5. Proof of funds: Before two strangers perform an OTC transaction, they go through various procedures to ensure the authenticity of each other’s claims. Besides identity, it is crucial to prove that the funds and coins that are going to be exchanged actually exist. The Proof-of-Funds (POF) demonstrates that a person or entity has the ability and funds available for a specific transaction. It usually comes in the form of a bank, security, or custody statement. or a form-free SWIFT MT799 bank-to-bank message that confirms that funds are in place to cover a potential trade.

#6. Proof of coins: The bitcoin equivalent to POF is Proof-of-Coins (POC) or, more general, Proof-of-Product (POP) to evidence that the seller owns the private keys or the exchange account, and has more than access to a watch-only address. Methods to prove bitcoin reserves include a screenshot or video, a physical meeting, a small payment (Satoshis), and a signed message. Such evidence can be provided to the buyer or to a third-party verification service.

#7. Procedures: Currently, no uniform market standard has emerged for private OTC deals. The choice of different parameters regarding contractual arrangements, selection of participants and available instruments, as well as the transaction flow distinguishes good from bad transactions. It is also crucial to clearly eliminate and avoid bogus transactions, scams, and frauds. This is not a playground for experiments.

Solid as a rock: Professional services and transaction support by experienced Bangkok law firm

PUGNATORIUS Ltd. advises and supports the large-volume trade of Bitcoin, altcoins, and other digital assets outside of institutional facilities worldwide. This assures the prevention of unnecessary publicity and attention, the avoidance of market interferences, serves local tax considerations, and allows far-reaching asset protection. The confidential involvement of the independent law firm ensures the best protection of the client’s intended purposes and allows access to a wealth of international experiences and hands-on cross-border transaction knowledge. 

Typically, the law firm assists international sellers in diversifying their asset structure. In this regard, it is a recognized and trusted counsel even in the difficult playground of a wild-west market situation. PUGNATORIUS Ltd. advises on the selection and screening of the buyer side, the drawing up of the transaction structure, the drafting and negotiation of the contractual aspects, as well as the closing and execution of the transaction until completion. As an international tax counsel, the firm’s practice also includes sophisticated tax planning and reporting and other compliance obligations, if any.

In Thailand and Asia, there is a large number of potential buyers of Bitcoin and other digital assets. PUGNATORIUS Ltd. has long-established crypto business contacts, is a market insider, and can put the legal framework of a transaction into a larger context. Local proximity to the buyers’ market and a deal team on the site are of particular interest to UHNWI and corporate sellers from the USA and Europe. The involvement of PUGNATORIUS Ltd. in large-volume transactions, therefore, creates an additional valuable benefit and level of comfort that exceeds the legal fees by far. 

Regarding cryptocurrencies and digital asset businesses, the Bangkok law firm offers mainly these seven legal and tax services: (I) Thai crypto-compliant company formations, (ii) regulatory-avoiding and tax-efficient cross-border structuring, (iii) digital asset and financial services licensing, (iv) Blockchain and ICO advisory services, (v) Thai and cross-border tax structuring, (vi) crypto transaction and OTC support services, as well as (vii) legal opinions and professional statements. Details can be found at “Legal advice, tax structuring, transaction support services and business matchmaking on Fintech, cryptocurrency and digital asset ventures“.


Disclaimer: PUGNATORIUS Ltd. does not provide financial advice and does not act as escrow agent, broker, connector, or trading desk. The law firm’s domestic services are strictly limited to legal and tax advice. The statements above have purely educational character. Secure your BTC-OTC in paradise.

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