Why OTC? When It Makes Sense

OTC trading means privately negotiating a Bitcoin trade with a counterparty or broker, instead of going through an open order book on an exchange. Reasons Canadians choose OTC include: large order sizes that would move market price on an exchange, privacy and reduced visible slippage, access to tailored settlement options such as wire transfer or escrow, and faster execution for high-value deals.

Understand the Regulatory Context in Canada

Canada regulates businesses that provide virtual asset services. Firms offering OTC brokerage as a service generally fall under the scope of financial regulation and anti-money laundering rules. FINTRAC supervises money services businesses and requires registration, compliance programs, and reporting from businesses. For individual buyers, banks and payment rails often have their own rules and monitoring that can affect large transfers, holds, or reversals. When planning an OTC purchase, expect to provide identification and source-of-funds documentation when transacting with regulated brokers or well-run OTC desks.

Key implication: prefer regulated or reputable counterparties for large trades. The convenience of an unregulated private seller is often outweighed by counterparty, legal, and banking risk.

Core Safety Principles Before You Trade

• Do your due diligence on the counterparty. Verify identity, track record, and on-chain control of funds.
• Never move your entire balance on a first transfer. Always start with a small test transaction on-chain and with settlement funds.
• Prefer self-custody. Have a hardware wallet ready and a verified receiving address you control before settlement.
• Use written agreements for large trades. A clear invoice or contract reduces disputes and clarifies settlement mechanics.
• Consider escrow or a neutral third-party settlement agent for sizeable or unfamiliar counterparties.

Choosing an OTC Counterparty: Options and Tradeoffs

Common OTC counterparties available to Canadians include: regulated institutional OTC desks, boutique OTC brokers, peer-to-peer platforms, decentralized peer networks, and private sellers. Each option has tradeoffs in cost, speed, privacy, and counterparty risk.

Regulated OTC desks and brokers

Pros: compliance, bank relationships, settlement infrastructure, dispute resolution. Cons: stricter KYC, possibly higher minimums and fees. For first-time large buys, regulated desks are usually safer.

P2P platforms and private sellers

Pros: potentially lower cost, flexible payment rails. Cons: higher fraud risk, escrow quality varies, bank chargeback risk with certain payment methods. If you go P2P, use escrow services with strong reputation and insist on on-chain proof of funds before releasing settlement funds.

Verification Techniques: How to Prove the Counterparty Controls the Bitcoin

Before you send fiat, confirm the counterparty actually controls the Bitcoin they intend to sell. Practical verification steps:

• Request a signed message from a wallet address that will be used in settlement. Have them sign a clear message including the trade reference and timestamp, then verify the signature against the public address.
• Ask for a recent on-chain transaction from an address they control, or a UTXO list that can be proven by signing a message.
• For institutional sellers, request a proof of reserves statement or a pre-signed withdrawal transaction that only needs your signature - this reduces counterparty custody risk.

Note: signed messages and proof of on-chain control are not foolproof, but they materially reduce fraud risk compared to blind trust.

Settlement Methods and Their Risks

Common settlement rails include certified bank transfer (wire), Interac e-transfer, cashier's cheque, and escrow. Each has pros and cons:

• Wire transfer - fast and generally final. Safer for large amounts when sent between verified business accounts, but banks may flag transfers and require documentation.
• Interac e-transfer - convenient for Canadians but carries reversal risk if the sender's account is compromised or if the receiving bank later reverses; avoid using e-transfer for very large transactions unless you understand and accept the risk.
• Escrow - a neutral escrow agent (lawyer, trusted exchange escrow) holds funds until both sides confirm. Good for mitigating bilateral risk, but choose reputable escrow providers and get escrow terms in writing.
• Cash-in-person - high personal safety risk; avoid meeting strangers for large cash deals. If you must meet, use public, well-lit areas with video surveillance and consider bringing a neutral witness.

A Practical, Repeatable OTC Workflow

Follow this step-by-step workflow for a safer OTC purchase:

1. Preparation - create and verify a receiving address on a hardware wallet you control. Record backup and verify seed phrase and passphrase if used.
2. Choose counterparty - select a regulated desk or a well-reviewed broker. Collect KYC paperwork if required and confirm payment rails and fees.
3. Verification - request a signed message from the seller proving control of the Bitcoin that will be delivered.
4. Agreement - get trade terms in writing: amount, price, settlement time, fees, escrow terms, and dispute resolution.
5. Test transfer - do a small test: send a small fiat amount and receive a small on-chain transfer to your hardware wallet to confirm settlement flow.
6. Main settlement - after successful test, execute the full settlement. Monitor on-chain confirmation and do not release funds until the agreed conditions are met if using escrow.
7. Post-trade - verify receipt of full Bitcoin amount to your address, confirm the transaction details, and update your records for tax and compliance reporting.

Custody at Settlement - Self-Custody Best Practices

As soon as the Bitcoin is available, move it to a secure self-custody setup. Recommended practices:

• Use a hardware wallet for private key storage and verify its firmware before use.
• Consider splitting large holdings into multiple addresses or use multisig for higher security and distribution of risk.
• Record transaction IDs, signed messages used for verification, and settlement receipts for compliance and future audits.
• Run a post-trade audit: confirm all expected UTXOs arrived and back up your wallet state securely.

Escrow and Neutral Settlement Options

For large trades, escrow reduces bilateral counterparty risk. Options include:

• Lawyer or notary escrow - trusted and legally accountable, often used for high-value trades.
• Exchange or broker escrow - many OTC desks offer built-in custody/escrow as part of the service.
• Multisig escrow - technical solution where both parties and a third party sign; good balance between trust minimization and practicality for experienced users.

Always document escrow terms and the conditions for release. If using a third party, verify their credentials and reputation independently.

Privacy, Taxes, and Record-Keeping

Keep clear records of OTC trades: invoices, signed messages, bank receipts, and on-chain transaction IDs. In Canada, cryptocurrency transactions are taxable events in many situations and records help with accurate reporting. Good bookkeeping also protects you if banks ask questions about large transfers or if regulators request information.

Red Flags and Common Scams to Avoid

• Pressure to skip verification steps or to rush settlement.
• Requests to send fiat first without proof of on-chain control or escrow.
• Unsolicited offers that seem