Luno OTC Bitcoin Desk (beta)
tl;dr We've been testing (over-the-counter) OTC transactions with our South African user base. At present, we only have it available for buy orders greater than 250 BTC. For smaller orders (and sell orders), we suggest using the Luno (formerly BitX) Exhange.
On exchanges and slippage
The most convenient way for the majority of traders to buy and sell stocks, commodities and Bitcoin at the current market rate, would be through an exchange, like the BitX Exchange.
The snag, as you might be aware of, is that despite seeing a specific exchange rate, the trade is actually restricted by the liquidity on the market: how much of the stock, commodity or Bitcoin you can buy or dispose of at any given time.
It's one thing to see the exchange rate of Bitcoin when there is only a few satoshis available at that price, quite another when you want to buy or sell a large amount. Bitcoin is reaching a larger and larger audience each day and more people are seeing Bitcoin as an asset class, worthy of substantial investment.
But let’s first rewind the clock to the prices as on the morning of May 31, 2016:
If you placed a sell order for up to 1.223 BTC on the BitX Exchange on that day, it would have fetched 9220 ZAR/BTC, as it is would have been matched to a seller who is willing to accept that amount of money for their Bitcoin.
That said, if you wanted to sell a substantial amount, say 100 BTC, the first 1.223 BTC would get closed at 9220 ZAR/BTC but you’d get an increasingly weaker exchange --due to limited liquidity. The tail end of an order like that will only fetch 8000 ZAR/BTC, or 13.2% less, in what is called slippage.
This will be the same for a trader who places a large buy order, but just on the other side of the depth chart, where they pay an increasingly higher price on their large transaction.
Some stock, securities and Bitcoin exchanges deal with these scenarios through OTC (or over-the-counter) trades, where a large transaction is facilitated not through a public exchange but through different, private channels.
How BitX OTC transactions work
This is merely an example of how it is structured:
- A verified customer contacts BitX OTC and says: “I want to buy R2.5m ZAR worth of Bitcoin today”. This party is the buyer.
- BitX receives R2.5m ZAR from the buyer via bank transfer and holds it in escrow (meaning the deposit is held by BitX until the transaction is completed or cancelled).
BitX OTC makes contact with our traders with an offer saying: “We are facilitating a 250 Bitcoin buy order at R10,000 ZAR/BTC, minimum 50 BTC per trade, any sellers interested?”
- The first interested seller(s) who accept make their BTC deposit(s) to their BitX accounts, which BitX also holds in escrow. Preference is given to sellers who can close the entire trade in one go.
- BitX transfers the ZAR to the seller(s) and the BTC to the buyer and charges a fee to both sides of the trade.
Advantages of Bitcoin OTC transactions
There are many advantages to adding an OTC Desk:
- Institutional investors and funds can now buy Bitcoin in larger volumes. The more people own (and learn about) bitcoin, the better for the industry
- No or low slippage in the exchange rate on your transactions
- No big spikes and drops in the exchange rate for other users
- Consistent pricing on large orders, fees same as levied on Exchange
We charge the same fee on OTC trades as we do for taker orders on the Luno Exchange.
If you are currently interested in buying large amounts of Bitcoin, we are ready to assist.
There are a few things you need to be aware of:
- The minimum trade size we'll consider at this time is 250 BTC. If you want to buy/sell smaller amounts at this time, kindly make use of the BitX Exchange
- You'll need to have an ID-verified account with BitX
- If you're selling BTC, we'll require the Bitcoin to be in your BitX account (with at least three blockchain confirmations)
- If you're buying BTC, we'll require that the South African rand be in your account at the time of trading
- If you're buying on behalf of a business or fund, the entity should have a verified account with BitX
- All OTC orders are currently set at the mid-price (that is, the middle of the spread or the average of the best bid and ask)
- We may at times quote the 6, 12, 24 hr average mid-price to ensure a fair price for both buyer and seller
- Once we have email or phone confirmation from both parties, we execute the trade and levy a 0.1% fee on both sides of the trade
- OTC trades will show in our 24-hour volume, but these trades will not impact/close any orders on the BitX Exchange or change the exchange rate
If you're interested in OTC trades, simply send us an email at [email protected] at your earliest convenience and we'll answer your questions.
I’m sure you’re aware that the price has jumped by around 30% in the past month, so if you have previously purchased coins stashed away somewhere, it might be a very profitable time to sell right now ;-)