A summarizing review of what has been happening at the crypto markets of the past week. A look at trending sectors, liquidity, volatility, spreads and more. The weekly report in cooperation with market data provider Kaiko.
The last 7 days in the cryptomarkets:
- Price Movements: Crypto assets powering blockchain networks have seen triple digit returns throughout 2021 ranging from +100% to +600%.
- Trading Volume: The average trade size for BTC-USD markets has doubled on most exchanges since October 2020.
- Order Book Liquidity: The bid-ask spread is narrowing for crypto-fiat trading pairs after a prolonged period of volatility.
- Volatility and Correlations: USDC, a stablecoin that will be settled by Visa, has become less volatile over time and now rarely drifts from its 1-to-1 dollar peg.
Record-setting returns for blockchain tokens
While the Ethereum and Bitcoin blockchains are the best known in the crypto industry, there are quite a few competing networks that have recently gained attention for their scaling potential. Alternative blockchains are often referred to as 'Ethereum-killers' for their solutions to problems that the Ethereum network has historically struggled with.
It is no surprise that the tokens powering these competing blockchains have seen huge returns over the past few months as Ethereum's growth continues to be restricted by high transaction fees. The Solana blockchain's SOL token has gained more than 600% YTD while the Cardana blockchain's ADA token has risen more than 500%. ADA was at one point the third largest crypto asset by market cap. Despite record-setting returns, Ethereum's on-chain network activity still remains magnitudes greater than any competing blockchain network.
Average trade sizes have soared since October
Since the start of Bitcoin's bull run, the average trade size for BTC-USD trading pairs has increased on nearly every exchange. On Coinbase, the average trade size grew from ~$1.3k to ~2.5k, on Kraken from ~$2.8k to ~$5.1k, and on Bitstamp from ~$3.6k to $6.4k. Yet, nothing beats LMAX Digital's growth from ~$6.8k to ~$17.6k per trade. LMAX Digital is an exchange marketed towards institutional traders, which could explain why trade sizes are so much higher compared with other exchanges that often have a more retail trader base. While trade sizes have increased overall, they have flatlined over the past couple of months as the pace of institutional dollar inflows has slowed down.
Spreads are improving for BTC-USD pairs
January was one of the most volatile months in Bitcoin's history, resulting in a prolonged period of wider-than-average spreads across exchanges. Market makers will widen spreads as a way to manage risk if volatility expectations are high. Since the beginning of February, spreads have narrowed considerably on every exchange analyzed, which suggests that volatility expectations have decreased.
USDC has become more stable over time
This morning, visa announced that it would allow payments to be settled using the stablecoin USD Coin, a product of Coinbase and Circle. The value of USD Coin is pegged to and fully backed by the U.S. Dollar and managed by the Centre consortium. Over the years, its value has occasionally drifted from its dollar peg, which can be observed in the chart above. However, since 2020, USDC has become increasingly stable, and now rarely drifts more than $.001 above or below $1. Visa has become the first major payments network to allow settlements using USDC which is a big step in the widespread adoption of digital assets.
