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 cryptocurrency markets:
- Price Movements: Ethereum continues to surge to new all times highs in a week marked by notable institutional developments.
- Volume Dynamics: In just one year, the BTC-USDT trading pair on Binance went from accounting for more than 40% of total exchange volume to just 6%.
- Order Book Liquidity: The quantity of selling orders on ETH-USD order books has been greater than the quantity of buying orders for the past two weeks, which suggests profit-taking.
- Volatility and Correlations: Bitcoin and the U.S. Dollar Index (DXY) no longer trade in opposite directions.
The Ethereum flippening?
Ethereum has entered pure price discovery mode as it continues to surge, closing the week at just under $4k. Last week, ETH spot volume as a percentage of BTC volume flipped for the first time ever, with ETH-USD trades accounting for 51% of total volume, a first-of-its-kind occurrence. The same "flippening" happened in options markets. Meanwhile, Bitcoin inched up slightly throughout the week, although it remains stuck below the vaunted $60k price level.
Overall, it was another exciting week in crypto with a new round of positive institutional developments including Citi's prospective crypto services, Goldman's new Bitcoin derivatives, Square's billions in crypto revenue, and Paypals exploratory stablecoin initiative.
Market structure on Binance shifts away from Bitcoin
Total trade volume on Binance has soared over the past year, with many billions in trades now executed every day. However, we were interested in understanding the breakdown in trade volume to get an idea of which pairs receive the largest share of volume. Specifically, we compare Binance's BTC-USDT trading pair to all other pairs that trade on the exchange (1,000+). The results are quite fascinating and show that over the past year, the BTC-USDT pair has gone from accounting for more than 40% of total volume to just 6%.
What has happened over the past year that has resulted in such a sharp shift in market structure? The raw number of trading pairs listed on Binance has not changed that much--rather, overall market structure has shifted towards Ethereum, altcoin, and BNB markets. Traders are increasingly pouring money into alternative crypto assets beyond just Bitcoin in a sign that altcoin markets are growing and thriving on the largest crypto exchange in the industry.
Introducing a new liquidity measure
The ratio of buying orders to total market depth is a new measure we launched with the latest version of our Factsheet which can be used to obtain a market-wide view of liquidity on spot order books. When the ratio is greater than0 .5, this means that the quantity of buying orders is greater than the quantity of selling orders.
We can observe that for the past week, the average quantity of selling orders on eight ETH-USD order books is greater than the quantity of buying orders. This suggests that traders are preparing to take profit at higher price levels.
The U.S. Dollar vs. Bitcoin
Throughout 2020, Bitcoin and the U.S. Dollar for the most part moved in opposite directions from one another. The U.S. Dollar Index (DXY) tracks the dollar relative to a basket of foreign currencies. The pandemic-induced economic crisis and subsequent monetary stimulus caused the DXY to plummet as Bitcoin soared to new all time highs.
However, the index has shown recent signs of life as economic recovery brings the possibility of scaled back stimulus measures (although disappointing jobs growth could put this on pause). If this trend is any type of indicator for Bitcoin’s price movements, then the DXY's 2021 gains could point to coming crypto losses. However, as the pandemic comes to a close in the United States we will likely see a shake up of financial trends as markets re-calibrate for a post-pandemic economy. Thus, only time will tell whether the DXY-BTC correlation will remain a relevant indicator.
