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: Bitcoin closed the week down 21% and Ethereum down 8% in a market-wide sell-off triggered by Elon Musk.
- Volume Dynamics: In just one year, the average trade size for Ethereum has more than tripled on Bitstamp, Kraken, and LMAX Digital.
- Order Book Liquidity: Market depth evaporated in another case of algorithmic market making perpetuating price crashes.
- Volatility and Correlations: Intraday volatility appears to be returning, but nowhere near as drastic as early January.
Elon Musk triggers cascading sell-off
Bitcoin (BTC) is no Dogecoin, but over the past few month's the largest crypto-asset's price movements have been increasingly correlated with Elon Musk's tweets. Following news that Tesla would no longer accept crypto payments, Bitcoin plunged below 50'000 USD and closed the week down more than 20%. The sell-off spread throughout crypto markets, with Ethereum (ETH) down 8% just days after reaching a new all time high of 4'344 USD. In traditional financial markets, the prospect of scaled back stimulus measures in response to the latest inflation data caused a brief equities sell-off that likely contributed to crypto's sea of red.
Average trade size for ETH-USD is soaring
On nearly every exchange analyzed, the average trade size for ETH-USD trading pairs has more than doubled over the past year. To calculate the average, we divide the total trade volume in USD by the total trade count. Since last May, the average trade size on LMAX Digital has jumped from just 1'000 USD to 8'000 USD. On Bitstamp, from 1'500 USD to 7'000 USD. On Kraken, from 1'000 USD to 6'000 USD, and so on. The surge in trade sizes comes amidst Ethereum's record-setting bull run to all time highs. But how can this measure be interpreted?
The average profile for ETH traders is likely becoming more institutional, with traders placing larger market orders which would shift the average upwards. However, the data also suggests significant profit taking with long-time holders of ETH cashing out. Average market sell orders are almost always larger than average market buy orders, and our average trade size data combines both trade directions. Ultimately, buying pressure is outweighing selling pressure, so both scenarios likely factor in to the observable trend.
Crypto sell-off demolishes order book liquidity
Following a sell-off, it is always fascinating to analyze order book data because it reveals the deep impact that market makers have on price discovery and overall liquidity. Price and volume data are only one side of the story, and order books can show the underlying impact that a liquidation cascade can have on spot markets. Market makers supply liquidity to order books and when spooked by volatility, they will often pull limit orders en masse. This is almost always done algorithmically which is why from one second to the next, market depth can evaporate.
This is exactly what happened on May 13th as Bitcoin's price plummeted. Liquidity dried up on almost every exchange, but Coinbase experienced an unusually large impact considering their BTC-USD trading pair is one of the most liquid in crypto. Coinbase reported delayed settlement of BTC-USD trades during this time which could have played a role, but it is still unclear.
Ethereum had its largest hourly movement in the past year
Intraday volatility comes in waves, with constantly fluctuating regimes throughout the year. The last big wave of volatility was early January, with a slight surge at the end of February. March was relatively quiet, but right now we appear to be in a growing intraday volatility surge. Last week, Ethereum crashed a whopping 10% in a single hour, its single largest drop in the past 365 days. Overall, Ethereum's intraday volatility is greater than Bitcoin's, and this has held true over time.
