Avoid These Scams in OTC Crypto Market, See How OTCTrade.com Protects You
More cryptocurrencies are traded over-the-counter (OTC) than on regular exchanges. It’s because whales and other large investors prefer direct peer-to-peer (P2P) interactions to avoid price slippage and access liquidity.
While OTC trading addresses fundamental issues related to liquidity and price discovery, the market is still less monitored and full of scams. It’s like the deep web — way larger than the visible Internet and with more freedom but also associated with greater risks.
In the following lines, we’ll go through the main types of risks and scams experienced by OTC traders. We at OTCTrade.com provide a secure platform that not only discourages all wrong behaviors but makes them technically impossible.
Risks Associated with Crypto OTC Trading
It’s important to know that OTC trading is a vague term that touches upon several approaches of P2P interactions. It can describe trading operations carried out directly between buyers and sellers via communication channels like Telegram, Skype or Facebook, among others. Besides these direct interactions, there are specialized OTC brokers that facilitate large trades and provide an online meeting space for crypto buyers and sellers that seek to avoid regular crypto exchanges and unnecessary middlemen.
You might think that OTC brokers are automatically more secure than trading with random investors on Telegram. While it’s true in most instances, it always depends on the broker you deal with.
A recent report published by blockchain analysis firm Chainalysis found out that some OTC brokers help criminals by providing money laundering schemes through cryptocurrencies, especially by using Tether’s USDT stablecoin as an intermediary currency.
Trading with such brokers might be risky because they may be tracked by law enforcement agencies and you don’t want your balance to be unexpectedly frozen. In June 2020, police from China’s Guangdong province froze at least 4,000 bank accounts of OTC crypto traders who held cryptocurrencies, USDT, and cash, citing suspicion of money laundering activities.
Many OTC brokers have trivial or nonexistent KYC (know your customer) requirements, even though some of them are associated with one or more regulated crypto exchanges. Because of this laxity, criminals manage to cash out their funds quite easily.
OTCTrade.com addresses this issue by imposing strict KYC rules to everyone involved in the trading process — from desk providers to individual investors. Still, we don’t share the personal information with any third party so that our clients could benefit from a decent degree of anonymity.
The Chainalysis report concludes that the best way to overcome the money laundering phenomenon in the crypto OTC space is to introduce effective KYC processes and develop a transparent environment. We at OTCTrade.com are doing just that.
Money laundering aside, here are other risks that OTC traders might experience in unmonitored environments:
- Settlement risk — if you’re looking for deals on Telegram or Skype, there is no guarantee that the equivalent cryptocurrency or fiat money will be delivered after you pay. OTCTrade.com provides an escrow solution that brings confidence on both sides of a deal.
- No custody — most OTC brokers don’t offer a custody solution, which weighs on smooth settlement and operations. OTCTrade.com provides a reliable custody service thanks to the partnership with Prime Trust, a renowned brand that builds open infrastructure solutions for fintechs.
- No monitoring and surveillance tools — many OTC brokers don’t really care who they’re dealing with, thus enabling money laundering schemes. Trading through online communication tools is even riskier, as there is no monitoring of counterparties. The lack of basic surveillance mechanisms doesn’t promote a transparent environment. For OTCTrade.com, transparency is a priority, which is why our platform has implemented strict KYC processes. If you land on our platform, you can rest sure that everyone on the other side is well-intentioned.
- No Insurance — most OTC services don’t bother to insure your hard-earned money. In the case of an unexpected malicious activity or hacking attack, traders are left with nothing. OTCTrade.com offers clients a standard $5 million insurance for all accounts. Besides this, there are additional insurance options for those looking for even safer trading conditions.
Avoid These Common Scams in Unmonitored Crypto OTC Environments
Given that the crypto OTC market is associated with large transactions and piles of cash, there is no way to avoid potential scammers and opportunists.
You don’t necessarily have to be a naïve investor to fall for scams, as fraudsters are constantly polishing their schemes and manner of acting. Here are some commons tricks that scammers employ to lure traders, especially on Telegram and Skype:
- Fake videos — fraudsters often create fake videos to prove that they hold the amount of cryptocurrency they’re trying to sell. They either write the current date or use the news feed to convince potential traders that the video clip is fresh. Sometimes scammers show on video that they have billions in cryptocurrency, which should instantly raise a red flag. Today, experienced traders don’t use videos at all, as they can eventually circulate online.
- Phishing — one of the most popular frauds, even outside the crypto OTC space, is phishing — a cybercrime in which scammers pose as working for a popular brand — e.g., a crypto exchange or wallet provider. They can use logos of real institutions and companies, so it makes sense to regularly check the information by directly getting in touch with the company via their website or LinkedIn. Phishers can even simulate or clone the entire site of a company so that victims could insert their personal data when trying to register or conduct a transaction. This is why you should never click on unrecognized links.
- Fake and low-quality sites — fake webpages are a form of phishing that should be discussed separately given their high prevalence. They try to fool investors by using a logo resembling a popular crypto service or whose domain name is misspelling of a trusted site. Along with them, there are low-quality sites that pretend to act as innovative OTC platforms. Generally, it’s not that difficult to spot a fake website — they display no photos and bios of the management team, there is no authentic contact information, and the site is designed very poorly. Basic due diligence will help you figure out whether you deal with a trusted service.
- Fake agreements — to make a crypto deal look legit, scammers might send victims the signature of a seller in the form of a scan or a JPEG picture with the seller’s passport. However, one can easily find passport photos through a simple Google search, and no one can guarantee that those passports are real. Professional traders don’t share such sensitive information with strangers online.
Generally, scams like the ones mentioned above have been prevalent in unmonitored environments like Telegram groups, Skype or P2P exchanges like LocalBitcoins. As a rule, scammers attract investors by offering generous discounts, i.e. up to 10%.
OTCTrade.com filters out potential fraudsters by introducing clear rules to be followed by all parties and imposing rigorous KYC processes. Combined with a unique mix of security-oriented features, this gives our platform full control over every action taking place in our ecosystem.
Besides offering a secure space to discover best deals, OTCTrade.com hasn’t let aside your comfort. We put together a well-designed platform that has an intuitive interface and focuses on automation.
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