Why Retail Investors Often Lose Out When OTC Token Deals Prosper

In the cryptocurrency landscape, over-the-counter (OTC) token deals are frequently touted as beneficial for all parties involved. However, the reality can be quite different, particularly for retail investors. OTC deals, conducted directly between two parties without the involvement of centralized exchanges, can generate opportunities for large institutions at the expense of individual investors.

One key reason for this disparity is that OTC deals allow large institutions to circumvent market impact. When a large institution buys or sells a substantial amount of tokens on an exchange, it can cause significant price fluctuations. By trading OTC, they can complete these large transactions without causing market disruptions, giving them an advantage.

This advantage, however, often comes at the expense of retail investors. When these large deals are not reflected in the public order book, retail investors lack the same level of information about market supply and demand. This can lead them to make trading decisions based on incomplete information, potentially resulting in losses.

Furthermore, OTC deals often involve preferential pricing for large institutions. Because they trade in bulk, they may be able to negotiate better prices than are available to individual investors on exchanges. This can put retail investors at a disadvantage, as they are essentially paying a premium for the same tokens.

Finally, OTC deals can create artificial scarcity in the market. If large institutions are buying up significant quantities of tokens OTC, there may be fewer tokens available for trading on public exchanges. This can lead to artificially inflated prices, making it more difficult for retail investors to acquire tokens.

In conclusion, while OTC deals may appear to be a win-win for everyone, they can be detrimental to retail investors. By avoiding market impact, negotiating preferential pricing, and creating artificial scarcity, large institutions can use OTC deals to gain an advantage at the expense of individual investors. Therefore, it’s crucial for retail investors to be aware of the potential risks associated with OTC deals and to make informed trading decisions.