What OTC means and who uses it

OTC trades can be brokered by regulated desks, executed peer-to-peer, or facilitated via online OTC marketplaces. Typical users include miners selling block rewards, exchanges rebalancing inventory, institutions allocating treasury, and private buyers wanting less market impact. In Canada, institutional-grade OTC desks are often offered by licensed crypto firms and some traditional brokers that integrate with regulated Canadian infrastructure.

Common OTC arrangements

• Brokered trade with an OTC desk that posts inventory and quotes a fixed price.
• Direct counterparty trade where buyer and seller agree terms and settle bilaterally.
• Escrowed settlement using a neutral custodian, multisig, or smart contract.

Canadian regulatory context and KYC considerations

In Canada, crypto service providers must follow anti-money laundering rules. Firms commonly perform know-your-customer checks and report to Canadian authorities as required. When using an OTC desk, expect to present identification, proof of address, and source-of-funds documentation. If you are a business, prepare corporate documents and beneficial ownership info. These steps are standard and protect both sides from regulatory exposure.

Practical tip: if a counterparty claims they can bypass KYC or keep large transfers off the books, treat that as a major red flag. Compliance obligations exist for a reason, and avoiding them can expose both buyer and seller to legal risk.

Choosing a trustworthy counterparty

Counterparty selection is the single most important decision in an OTC trade. Here are ways to vet counterparties and reduce risk.

Reputation and track record

• Prefer regulated Canadian desks or global desks with a local presence. Many Canadian exchanges operate OTC desks that integrate KYC and banking rails for CAD settlement.
• Ask for references or publicly verifiable trades. Reputable desks will provide client testimonials or case studies while protecting privacy.

Operational safeguards

• Does the desk use custody partners or hold assets on its balance sheet? Understand custody and counterparty exposure.
• Ask whether they provide escrow services, use multisig, or support conditional settlement mechanisms like atomic swaps or PSBT-based escrow workflows.
• Confirm settlement windows, minimum confirmations required, and dispute resolution policies in writing.

Banking and fiat rails

Working with a counterparty that has established, transparent banking relationships reduces settlement risk. If bank transfers are involved, expect normal bank timelines, and be aware that Canadian banking partners will often require documentation for large CAD movements.

Settlement methods and practical security steps

How you settle determines your exposure. The safest OTC settlements combine technical controls with legal protections. Below are commonly used methods and recommended practices.

Escrowed settlement - multisig or neutral custodian

Escrow uses a neutral third party or multisig arrangement to lock funds until both sides meet the trade conditions. Options include using a regulated custodian, a trusted legal escrow, or a technical multisig with hardware wallets and PSBT workflows. Advantages: reduced counterparty theft risk and clearer recourse if the trade fails.

Direct on-chain settlement

Direct settlement means the seller sends Bitcoin to the buyer after receiving fiat, or vice versa. This approach is faster but riskier if the fiat leg has not cleared. For CAD fiat, consider waiting for bank-cleared funds before accepting the BTC. Use small test transfers first and insist on on-chain confirmations before releasing value.

Lightning Network and instant settlement

Some desks support Lightning settlement for speed and lower fees. Lightning can be efficient for smaller OTC blocks, but requires both parties to have compatible channels and liquidity. If using Lightning, confirm channel capacity and test a small payment before the full settlement.

Practical security checklist before settlement

• Use hardware wallets for final custody and verify device authenticity.
• Perform a small test transfer on-chain or via Lightning to verify addresses and routing.
• Confirm fiat has clear settled status in your bank account before releasing Bitcoin when you are the seller.
• Use PSBT or multisig escrow when possible for large transfers to avoid trust-on-delivery risk.
• Document the trade terms in writing: amount, price, settlement time, fees, and dispute process.

Payments and CAD-specific considerations

In Canada, common payment rails include wire transfers, Interac e-Transfer, and bank drafts. Each has pros and cons for OTC trades.

Interac e-Transfer - fast but risky for large OTC trades

Interac e-Transfer is convenient for retail and small P2P trades, but it was not designed for settling large OTC blocks. Fraud vectors include chargeback-like disputes and social engineering. If a counterparty insists on e-Transfer for a large amount, insist on using bank-certified methods or escrow. Never accept incoming e-Transfers without verifying the sender and waiting until funds are confirmed by your bank.

Wire transfers and bank-to-bank settlement

Wires are more appropriate for large OTC trades because they provide a stronger settlement record in banking systems. Expect identity checks and potential holding periods depending on the bank and amount. Communicate with your bank in advance if you plan frequent or large trades to reduce friction.

Cash and in-person trades - avoid when possible

Meeting in person for cash can be risky. It may expose you to theft, extortion, or regulatory scrutiny. If you choose an in-person route, meet in a public safe location, notify someone you trust, and prefer escrowed settlement rather than exchanging cash for keys on the spot.

Fraud red flags and how to spot scams

OTC scams take many forms: fake escrow services, counterfeit confirmations, social-engineered bank reversals, and fake identity. Below are common warning signs and concrete actions to take.

• Pressure to skip KYC or keep the trade undocumented. Action: refuse and walk away.
• Requests to use non-reputable escrow or a private wallet owned by a third party. Action: insist on well-known custodians or multisig where each party holds keys.
• Unsolicited offers that are time-limited or too-good-to-be-true. Action: verify independently and get references.
• New accounts or email domains that mimic established firms. Action: verify corporate registration and contact details, call official numbers you find independently, and request proof of entity registration.
• Bank deposit reversals or cancellations after Bitcoin has been released. Action: never release Bitcoin until funds are irrevocably cleared according to your bank policies.

Tax, reporting, and recordkeeping

Keep detailed records of OTC trades for tax compliance. In Canada, crypto transactions can trigger capital gains or business income events depending on activity and intent. Keep contract copies, invoices, bank statements, wallet addresses, and transaction IDs. Consult a Canadian accountant familiar with cryptocurrency to ensure correct reporting and to prepare for potential audits.

A sample OTC workflow you can follow

Below is a conservative workflow for a Canadian buyer purchasing a large amount of Bitcoin via an OTC desk or counterparty.

1. Vet the desk or counterparty: reputation, regulatory status, and references.
2. Agree on terms in writing: price, size, fees, settlement method, time window, and dispute resolution.
3. Complete KYC and provide any required documentation to the desk.
4. Arrange fiat funding via bank wire or other cleared method, and confirm expected settlement timelines with your bank.
5. Set up custody: prepare your hardware wallet, multisig setup, or custodial account. Verify addresses with a test transfer.
6. Execute a small test settlement to verify both rails and procedures.
7. Complete the full settlement, confirming on-chain transaction IDs and bank confirmation of cleared funds before releasing value.
8. Record everything and reconcile with accounting and tax advisors.

Final checklist: questions to ask before you trade

• Who is the legal entity I am trading with, and can I verify them independently?
• What KYC and AML documentation is required from both sides?
• How will custody work and who holds the keys during settlement?
• What is the exact settlement process, including bank clearing and on-chain confirmation counts?
• Is escrow available, and who operates it? If multisig, what are the key custody arrangements?
• What are the fees and who pays them?
• What happens if the transaction fails or one party refuses to proceed?

Conclusion

OTC trading can be an efficient path to acquiring or selling significant quantities of Bitcoin, especially for Canadian buyers who need reliable CAD settlement and predictable execution. The tradeoff is greater counterparty and operational complexity compared with retail exchange orders. By choosing reputable counterparties, insisting on clear KYC and escrow arrangements, testing settlement rails, and documenting the deal, you can significantly reduce risk. When in doubt, move more slowly, consult legal and tax professionals, and prefer technical controls like multisig and PSBT-based escrow over blind trust.

If you plan to trade OTC regularly, build relationships with regulated desks, work with banks familiar with crypto flows, and invest in robust custody solutions. That combination gives you speed and scale while keeping your Bitcoin secure and your compliance profile clean.