Retail Traders Left in the Dark as OTC Deals Skew Crypto Markets

Bitcoin Price Plunge Sparks Outrage: Binance Targeted For Alleged Market Manipulation

Bitcoin’s sharp price decline has intensified scrutiny on major crypto exchanges, with retail traders and analysts pointing fingers at Binance for potential market manipulation. The controversy is part of a broader debate around opaque trading practices, particularly over-the-counter (OTC) token deals that institutional investors and market makers are accused of using to lock in profits at the expense of retail traders. These practices are said to contribute to price volatility and erode trust in the market’s fairness.

Jelle Buth, co-founder of market maker Enflux, explained that OTC deals allow institutional investors to secure tokens at steep discounts—often up to 30%—and hedge their positions by shorting on perpetual futures markets. This strategy, which can yield annualized returns of 60% to 120%, creates a risk-free trade for insiders while retail traders bear the brunt of the market impact when these hedges are liquidated or tokens unlock after vesting periods. Such strategies are particularly opaque, with limited disclosure, making it difficult for retail investors to make informed decisions [1].

This asymmetry is further exacerbated by the lack of regulatory transparency in the crypto space. Unlike traditional finance, where such arrangements are disclosed in public filings, OTC token deals in crypto often remain confidential, leaving retail traders in the dark. Yuriy Brisov, a partner at law firm Digital & Analogue Partners, noted that while similar practices exist in traditional equities, they are governed by a robust framework of disclosure rules and trading restrictions that do not apply in crypto [1].

The mechanics of perpetual futures also work against smaller investors. Unlike traditional futures, perpetual contracts require traders to pay or receive funding fees, which can erode the profitability of OTC deals. When perpetual prices trade above the spot price, short positions pay longs, further chipping away at potential gains. Brian Huang, founder of crypto management platform Glider, emphasized that such costs represent an opportunity cost, as the capital tied up in these deals could otherwise be invested elsewhere [1].

Despite the disadvantages for retail traders, OTC token deals remain popular among funds and projects. For projects, these deals offer a stable source of funding without the immediate market impact of public token sales. For investors, they provide high-yield opportunities with predictable returns. Jelle Buth noted that many venture capitalists now prefer liquid token deals with shorter vesting periods, as they align better with the returns investors expect [1].

The growing prevalence of these deals has sparked calls for greater transparency and democratization. While Buth does not condemn projects or funds for participating in OTC deals, he stressed that retail traders must be aware of the risks and asymmetries involved. Some industry figures suggest that platforms should restrict secondary token sales by venture capitalists to prevent further market distortion. As the crypto market continues to evolve, the debate over OTC deals and their impact on price discovery and retail participation is likely to intensify [1].

Source: [1] Retail traders lose when OTC token deals win: Here's why (https://www.coinglass.com/ru/news/543325)