Discussion on the Risks of Bitcoin OTC Trading

As major Bitcoin trading platforms in my country have stopped trading services, many Bitcoin holders choose to trade in overseas markets or find trading counterparties through online instant messaging software. The latter is called over-the-counter trading, which means not trading through a trading platform, but an over-the-counter point-to-point transaction of "one hand over money, the other hand over coins". Most Bitcoin holders find trading parties through WeChat groups and QQ groups. In addition to assuming their own risks, some use group owners as third-party guarantees for both buyers and sellers. After both parties transfer the Bitcoin and money to the group owner, the group owner confirms the transaction and charges a certain guarantee fee.

Since the transaction price and method in over-the-counter transactions are agreed upon by both parties, and the transaction prices are mostly higher than on-site transactions, it attracts more coin holders to participate, but the transaction risks cannot be ignored.

First, credit risk. The biggest difference between OTC and on-exchange Bitcoin trading is that OTC trading is based on the credit of both parties, and both parties bear the credit risk themselves, while the confirmation of on-exchange trading depends on the platform. However, since there is no third party involved in OTC Bitcoin trading, the success of the transaction depends entirely on the integrity of both parties. Once one party defaults, such as the other party completes the transfer of Bitcoin address, but one party refuses to pay, its rights and interests will be difficult to protect.

Second, policy risk. Due to the low degree of decentralization, the price of Bitcoin is easily affected by the buying and selling behavior of large investors and can be easily manipulated by speculators. At the same time, the inconsistent attitudes of various countries towards Bitcoin have led to sharp fluctuations in the price of Bitcoin, especially in mid-September when major domestic trading platforms successively issued announcements to stop Bitcoin trading services, which once caused the price of Bitcoin to fall to around US$2,300. Therefore, in the case of inconsistent policies on Bitcoin in various countries, the instability of its trading price will also have a certain impact on OTC transactions.

Third, the risk of lack of relief. The trading, use and settlement of over-the-counter bitcoin transactions are agreed upon by both parties. Once a dispute occurs, the parties to the transaction often face many difficulties in obtaining and presenting evidence, which puts them at a disadvantage in the transaction. At the same time, when the public security bureau files a case or the court reviews it, there is often a problem of no professional organization pricing bitcoin. In addition, my country's Criminal Law stipulates that the object of the crime of theft is other people's property with economic value. Since the economic value of bitcoin can only be proved by the trading platform according to the price displayed on the trading platform's trading software, this pricing is sometimes not recognized by the public security bureau and the court.

In short, since most countries have not yet established a complete protection mechanism for the transactions of digital cryptocurrencies such as Bitcoin, when conducting over-the-counter transactions of digital cryptocurrencies, coin holders should make prudent judgments, verify each link, and never be careless.

After Bitcoin exchanges ceased services, investors turned to over-the-counter transactions. Although there are many benefits, the risks cannot be ignored.