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: Crypto markets rebounded slightly following last week's market mayhem, with Bitcoin closing Sunday +1%.
- Volume Dynamics: The Asian exchange landscape has evolved significantly since 2017. We explore patterns in trade volume, trade sizes, and market dominance in one of the most important crypto regions.
- Order Book Liquidity: Liquidity for Tether markets on Binance and Huobi is better than the most liquid BTC-USD market.
- Volatility and Correlations: Bitcoin's correlation with Gold is at its lowest level since 2018.
Markets rebound slightly after week of red
Crypto markets are back up this week following a wave of positive news. Throughout the week, Ray Dalio revealed he owns Bitcoin, a16z reported a $2 billion crypto fund, and many of the industry's leading firms announced new funding rounds. Bitcoin closed Sunday night up 1% while Ethereum closed +11.5% in a turnaround that appears to have temporarily staved off further losses. However, at the crypto "macro" level, there remain lingering fears over a miner crackdown in China, which is a systemically important region to the crypto ecosystem (although it doesn't play an overly influential role in price movements).
Influence of Asian exchanges
China used to be critically important to cryptocurrency markets and was the center of Bitcoin exchange-related activity until 2017, when federal agencies banned all ICOs and crypto-related financial services. This market-shaking crackdown forced exchanges around the world to de-list all CNY currency pairs and caused many crypto businesses to shutdown. At the time, BTCC, Huobi, and OkCoin were three of the largest exchanges in the world catering for Chinese traders and boasted exponentially growing trade volumes (charted above).
Since 2017, the Asian exchange landscape has evolved drastically with BTCC and OkCoin all but vanishing in the region and Binance emerging as the new leader. Miners still play a crucial role in securing the Bitcoin network and a significant portion of this computing power is concentrated in China, the only crypto sub sector to survive past 2017. This is why the country's recent crackdown on mining threatens to alter the entire mining ecosystem and likely contributed to Bitcoin's latest sell-off.
The new "big three" of the region (Binance, Huobi, and Okex) all serve as a financial offramp for miners through their USDT markets, according to Chainalysis' Philip Gradwell. However, the miner crackdown has forced Huobi to suspend services with China, which could lead to another realignment of exchange activity in the region.
Binance as global leader
Today, Binance accounts for nearly 70% of total volume out of the new "big three", up from just 28% in 2019. As Okex and Huobi lose market share, Binance is being increasingly pitted against its U.S.-based competitor Coinbase.
Coinbase is Binance's regulated "fiat" counterpart that tends to attract a more institutional clientele. However, we can observe that over the past year the average trade size on Binance has climbed steadily which suggests that more professional traders are flocking to the exchange's Tether markets, which boast deep liquidity. Today, the average trade size on both exchanges is nearly equal, a trend that recently emerged as Coinbase trade size plummets after peaking in January.
Overall, the exchange landscape in Asia has altered significantly over the past 8 years, with Binance emerging as a global leader. Yet, patterns in trade volume show that borders don't really matter in crypto markets, with regional overlaps in exchange user bases the norm.
Strong liquidity throughout volatility
The past two months have been an extremely volatile time in cryptocurrency markets. Multiple price crashes demolished order book liquidity across nearly every exchange. Which exchange fared best throughout this tumultuous time? We ranked each exchange by price slippage, averaged over the past two months. Kaiko's price slippage data takes the slippage for a simulated $100k sell order by running this order size through the bid side of a raw order book snapshot. Generally, the lower the slippage, the more liquid the order book and the better it is able to support large market orders.
Coinbase, Kraken and Bitfinex fared best out of all BTC-USD markets, averaging around .02% slippage throughout April and May. Bitflyer's BTC-USD market fared worst, at more than .2% slippage for each $100k order.
Correlation between Bitcoin and Gold decreases
Bitcoin has always been likened to digital gold for its similar store of value properties. As global financial markets collapsed in March 2020, Bitcoin and gold rose to their strongest correlation yet. For much of 2020, this correlation held strong. However, as markets re-align and the pandemic nears an end in the United States, this correlation has dipped to its lowest point since 2018. The pandemic created unique market conditions that saw equities, gold and Bitcoin closely correlated. We can now observe a pre-pandemic trend between equities and gold setting in. Today, Bitcoin's correlation with both asset classes is either negative or weak.
