Recurring market commentary on what's happening in the crypto markets, summarized by the Crypto Broker team at Crypto Finance AG.

Market commentary

Good Morning!

During days like yesterday I hardly have time to pick up any messages or give a proper answer to questions coming in. Obviously, everyone wanted to know: "What the hell is happening!?!"

Bitcoin BTC (daily)

Firstly, I would like to look at leverage. Some accounts I follow on Twitter were pointing to the large amount of liquidations which they believe has caused the crash. I see it slightly differently. The amount of leverage in the system was moderate. As I pointed out in my TA-Tuesday, we were far away form the "overheated" state that we were in just before the all-time high in April/May. Also, following that period most of the larger exchanges reduced their leverage offering significantly. The only ruthless exchange is ByBit where you still can take on up to 100x leverage.

My take is that we are still seeing liquidity evaporation on the back of different factors:

US banking holiday
Trading venues and exchanges were not able to cope with the flow (details below)
Clogged up blockchains and high fees (especially Ethereum)

We did mention last week that long weekends could stir some volatility especially when there is a US holiday involved. The call was right, but only the timing was a little bit off. Let me explain how the above issues can be a deadly mix for liquidity.

I am sure, market makers and liquidity providers did plan for the long weekend and deployed capital across their trading venues. They might have been a little bit surprised by the strong upward price action during the weekend but were happy to hedge most of the futures volume with physical spot trades (nice basis). The consequence of this was that most of the market makers and liquidity providers were running low on USD or stablecoins. Since Monday was a pretty quiet day nobody was rushing aggressively to move USD back onto their trading venues.

Exchanges experiencing issues

Now, the sell-off started and we already experienced some issues with certain venues showing wider spreads and less liquidity in the order books (driven by the risk management systems of the market makers). Additionally, one venue after the other started to go down, offline or in maintenance (see list below):

Coinbase: 404 on order entry and latent market data
Gemini: lagged on market data and then shut down
Kraken: order entry failed - UI was overloaded (but didn't officially go down)
Binance US: fully broken - just did not work
Bitfinex: went into maintenance during the crash
CME: brokers refused to execute orders due to delayed reaction to limit down trigger
FTX US: had some aggressive rate limiting on users but worked

In an instant market makers and liquidity providers saw their trading universe shrink to a few venues and - do not forget - this all happened when volume had increased roughly 10x compared to normal market hours. As a consequence, they lowered their quoted amounts significantly and widened the spreads. But what gave them the biggest headache was the reshuffling of liquidity/collateral. Clogged up blockchains and very high transaction costs on Ethereum made the whole liquidity issue worse and some of the market makers and liquidity providers started to shut down.

This is when the market dropped to the lows we experienced and we saw massive price divergences between different trading venues. We felt the heat on our trading desk as well. At the peak hour we had almost 1'000 trades per hour and we were market making on exchanges, executing agency orders, and providing streaming prices of 51 different pairs for clients who traded with us on a principal basis.

For the newcomers... Welcome to crypto and happy trading!

All intellectual property, proprietary and other rights and interests in this publication and the subject matter hereof are owned by Crypto Broker AG including, without limitation, all registered design, copyright, trademark and service mark rights.

Disclaimer

This publication provided by Crypto Broker AG, a corporate entity registered under Swiss law, is published for information purposes only. This publication shall not constitute any investment advice respectively does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. This publication is not intended for solicitation purposes but only for use as general information. All descriptions, examples and calculations contained in this publication are for illustrative purposes only. While reasonable care has been taken in the preparation of this publication to provide details that are accurate and not misleading at the time of publication, Crypto Broker AG (a) does not make any representations or warranties regarding the information contained herein, whether express or implied, including without limitation any implied warranty of merchantability or fitness for a particular purpose or any warranty with respect to the accuracy, correctness, quality, completeness or timeliness of such information, and (b) shall not be responsible or liable for any third party’s use of any information contained herein under any circumstances, including, without limitation, in connection with actual trading or otherwise or for any errors or omissions contained in this publication.

Risk disclosure

Investments in virtual currencies are high-risk investments with the risk of total loss of the investment and you should not invest in virtual currencies unless you understand and can bear the risks involved with such investments. No information provided in this publication shall constitute investment advice. Crypto Broker AG excludes its liability for any losses arising from the use of, or reliance on, information provided in this publication.