OTC transactions are becoming increasingly popular among institutional investors, proxy trading houses, and fintechs as the world of cryptocurrency trading continues to develop. OTC trading, in contrast to traditional exchanges, provides a greater degree of flexibility and privacy, enabling direct transactions between parties without causing substantial market fluctuations. Nevertheless, it is crucial to have a robust banking infrastructure in place to facilitate the on-ramp and off-ramp of cryptocurrencies in order to engage in over-the-counter (OTC) transactions.
Why OTC Transactions Need Fiat Banking?
There are numerous reasons why crypto OTC transactions are dependent on fiat banking. Initially, cryptocurrencies provide decentralized and peer-to-peer transaction capabilities. However, the conversion of substantial amounts of cryptocurrency into fiat currency (such as USD, EUR, etc.) necessitates access to traditional financial channels that are capable of on-ramping and off-ramping these trades. This is crucial for liquidity management, as it allows traders to promptly convert profits or mitigate risks associated with market volatility.
Secondly, fiat banking enables merchants to access a wider range of markets by participating in multiple OTC desks or exchanges.
Finally, crypto traders or funds may wish to take new investors who may subscribe to the fund or investment manager with fiat currency. This investment must then be on-ramped and made available for crypto trading. Additionally, a portion of the trading proceeds will be transferred to the fiat currency and distributed among the investors as fiat funds at a later date.
Establishing A Bank Account That Allows Crypto OTC Transactions
Establishing a bank account that enables cryptocurrency transactions, particularly for over-the-counter trading, necessitates some effort.
Getting The Right Bank
It is crucial to locate a financial institution that is adept at accommodating OTC merchants’ distinctive requirements and supporting crypto activities. Make certain that the bank adheres to the local regulations that regulate cryptocurrency transactions in order to prevent legal complications (VASP licensing is applicable).
Preparing Documentation
The establishment of such a bank account will necessitate the submission of specific documentation, including a business plan that delineates the account’s intended use for OTC trading activities, proof of incorporation and the source of funds used to initiate the trading activities, proof of address, an organizational chart, and the identification of all decision-makers within the organization.
Your dedication to transparency and regulatory compliance will be evident in the meticulous preparation of compliance policies, including AML and KYC. In the future, it will be beneficial for you to preserve banking relationships that are beneficial to your business.
Building Banking Relationships
By establishing relationships with at least a few banks and their representatives, you can maintain the highest quality of services and diversify your banking business.
Engaging with banks that have experience administering accounts for crypto-related businesses or traders is advantageous, as these institutions are accustomed to the business model and can customize their solutions to meet your specific requirements.
To obtain a list of the most crypto-friendly banks that are familiar with OTC brokers and funds, please complete our contact form. We will provide you with an updated list via email.
Managing Your OTC Bank Account
It is essential to meticulously manage your bank account in order to achieve success in your over-the-counter trading endeavors:
– Transaction Monitoring: Conduct routine reviews of account activities to promptly identify any suspicious transactions.
– Foster Banking Relationships: Ensure that you maintain open communication with your bank in order to resolve any issues and simplify transaction processes.
– Adjust to Regulatory Changes: Maintain awareness of regulatory developments that may affect cryptocurrency transactions and modify your practices accordingly.
Conclusion
Careful planning, adherence to regulatory requirements, and the establishment of robust banking relationships are all necessary for the opening of a bank account for cryptocurrency OTC transactions. Institutional investors and traders can effectively support their OTC trading activities by establishing a secure and efficient banking infrastructure through the selection of the appropriate bank, the preparation of comprehensive documentation, and the adherence to regulations.