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Altcoins Reach New Highs as Coinbase Prepares to Go Public
April 12th, 2021

This week in cryptocurrency markets:
  • Price Movements: Ethereum reached a new all time high of $2,190 and Bitcoin again broke $60k on the eve of Coinbase's public listing. 
  • Volume Dynamics: Stablecoins now surpass Bitcoin as the dominant quote asset in crypto markets. 
  • Order Book Liquidity: Coinbase's order book liquidity is the strongest out of all fiat exchanges but lags that of Binance, Huobi, and Okex.  
  • Volatility and Correlations: The algorithmic stablecoin Fei Protocol failed to hold its USD peg after launching to much fanfare.
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Price Movements
 
New all time highs on the eve of Coinbase's public listing. On April 14th, Coinbase will be the largest cryptocurrency company to ever go public, giving a new class of investors the ability to invest in the future of crypto without direct exposure to the asset class. The crypto industry will be watching with anticipation to see how traditional markets value Coinbase, thus this week could be exceptionally volatile depending on the exchange's public reception on Nasdaq. Coinbase's biggest competitor, Binance, had a stellar week for its native BNB token, which again broke new all time highs. Ethereum also broke a new all time high above $2,190 as altcoin markets heat up across nearly every sector of the crypto industry. 
 
 
The 'Kimchi Premium' persists. The 'Kimchi Premium' refers to the spread in the price of Bitcoin across USD markets and Korean markets. For the past few weeks, the gap in prices has risen to new extremes as demand for Bitcoin surges, with prices diverging at one point as much as 20%. To put this into perspective, we chart the Bitcoin premium on Japanese markets, which ranges between +/- .005% on average. South Korean markets are notoriously isolated due to strict regulatory and capital controls imposed on Korean cryptocurrency exchanges. In the past, premiums have emerged due to high demand for Bitcoin and the difficulty to arbitrage these price discrepancies across borders. This has created an asymmetric market, divergent from global cryptocurrency market dynamics. 
Volume Dynamics
 
Coinbase's stellar growth. In preparation for Coinbase's public debut, the exchange released first-quarter financial results which showed revenues of a whopping $1.8 billion in the first few months of 2021. Coinbase also reported double the number of users, jumping from 2.8 million in Q4 2020 to 6.1 million in Q1 2021. Coinbase’s influence throughout the cryptocurrency industry has increased dramatically over the past year alone. Above, we chart the % change in both trade volume and trade count since Q1 of 2020, which highlights two important trends. 

The first trend is the growth of institutional traders. While the raw number of trades executed for the BTC-USD trading pair has increased around 350% since Q1 2020, the volume of trades executed has surged more than 745%, more than double the trade count. Institutional traders now make up around half of all of Coinbase's revenues and are responsible for larger trade sizes and volumes.

Another important trend depicted by the charts is the growth of Ethereum as an investible asset. The % change in volumes and trade count for the ETH-USD market is far greater than for the BTC-USD market, which shows that market structure has shifted drastically over the past year towards a more diverse crypto ecosystem. 

 
Coinbase positions itself as the exchange for traditional capital markets. Ever since Coinbase filed their S-1, they have increasingly positioned themselves as the exchange for capital markets participants. Recently, they have heavily emphasized the growth of their institutional clientele and services as a way to differentiate themselves from more retail powerhouses like Binance. Coinbase is not alone in the industry when it comes to institutional branding: most exchanges that offer fiat trading services (as opposed to crypto-only) are marketing themselves towards a more institutional clientele. 

The chart above shows the percentage of total Bitcoin volume across the biggest fiat exchanges, demonstrating how Coinbase has grown its market share steadily since 2018. While Coinbase has revealed an ever-growing institutional clientele, retail traders are ultimately what transformed the exchange into a a crypto powerhouse.

 
Ethereum's growth as an investible asset. Over the past year, the ratio of BTC to ETH trading volume demonstrates how traders are increasingly investing in Ethereum. Last year, only 18% of total volume was for ETH, while 82% was for BTC. Today, that number has surged to 33% of total volume, the highest monthly amount yet. The growth in Ethereum as an investible asset coincides with the growth of DeFi and NFT markets, which operate on the Ethereum blockchain. 

 

Stablecoins are increasingly dominant as a quote asset. Until 2018, the majority of all traded instruments were denominated in Bitcoin. With the increasing popularity of stablecoins like Tether, more and more exchanges began listing instruments with stablecoins as the quote asset. We can observe that in 2020, a crossing over occurred between the number of instruments denominated in Bitcoin and in stablecoins. Today, nearly 1/3 of all instruments are denominated with a stablecoin while only about 1/7 of all instruments are denominated with a fiat currency. This is also indicative of a wider shift in market structure away from exclusively Bitcoin markets. 

Kaiko is the premier cryptocurrency market data provider for professional traders, fund managers, researchers, exchanges, and custodians. Our data services enable seamless connectivity to historical and live data feeds from 100+ spot and derivatives exchanges

Browse our data dictionary to learn more about our extensive data offerings here. If you are interested in trialing our API, email us at hello@kaiko.com. 

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Order Book Liquidity
 
Coinbase liquidity lags Asian exchanges. Coinbase is one of the few fiat exchanges competitive with Binance, Huobi, and Okex in terms of order book liquidity. We use the bid-ask spread as an indicator of market liquidity for BTC-USD and BTC-USDT trading pairs on a group of 10 exchanges. The narrower the spread for a trading pair, the more liquid the market. We can observe that Coinbase's spread for their BTC-USD market is the tightest out of all fiat exchanges, but lags behind the BTC-USDT markets on the Asian exchanges. Below, we rank the exchanges by average bid-ask spread over the past year: 
 
We can observe that Okex, Huobi, and Binance have the tightest spreads, with Coinbase coming in 4th place. It is important to note that exchanges sometimes incentivize market makers to keep spreads tight, resulting in artificially tight spreads at the loss to the market maker. In organic markets, market makers will widen spreads in response to volatility. If spreads remain tight during periods of extreme volatility, this suggests market makers are being incentivized to fix spreads. 

Price slippage is often a better indicator of liquidity because it is more difficult to artificially maintain than the spread, thus gives a more realistic idea of how market orders will affect the price of an asset. When looking at price slippage for a simulated $100k sell order, we can observe that the ranking of exchanges has shifted slightly:
 
Coinbase is now neck-in-neck with Okex in terms of slippage, and on par with Binance and Huobi. The order of fiat exchanges has also shifted substantially, with Bitstamp moving from last place in terms of spread to 6th place in terms of slippage, which indicates Bitstamp's markets are actually more liquid than the spread would suggest. 


In our March monthly report, we look back at the biggest milestones and trends of one of the most consequential quarters in the history of crypto markets, exploring BTC volumes, stablecoins, altcoins, order book liquidity and much more.

You can download the report here or view the report on Coindesk's Research Hub

Download Market Report
Volatility and Correlations

Algorithmic stablecoin fails to hold peg. Last week, the Fei Protocol stablecoin launched with much fanfare, backed by prominent VCs and an innovative approach to algorithmically maintaining its 1:1 USD peg. Alas, an unexpected surge of demand at the launch caused the stabilization mechanism to fail, plunging the protocol well below its 1:1 peg, where it has now traded for days. Most stablecoins are backed 1:1 by U.S. Dollars, but the Fei team proposed an alternative method for stabilization involving a complex incentive structure that proved unfamiliar to those rushing to purchase the coin. At the least, this experiment highlights the complexities in stablecoin pricing models and that there is much work to do before a successful algorithmic protocol can function properly. 

 
Volatility plummets as Bitcoin stays range-bound. For the first time since November, Bitcoin's 20D volatility curve has crossed below its 180D curve following weeks of trading in a tight range. Bitcoin finally broke through $60k this past week, but failed to find support above the psychological price level. 
 

Thanks for reading and see you next week!

-Clara Medalie, clara@kaiko.com  (email me for any feedback or suggestions!)
Download Factsheet
Catch Up With the Kaiko Team!
 
How Robust Market Infrastructure Will Boost the Adoption of Crypto Assets - On April 15th, Kaiko CEO Ambre Soubiran and Strategy Lead Clara Medalie (and writer of this Factsheet!) will be hosting a panel with GBBC all about crypto market infrastructure. Register for the event here

Paris Fintech Forum - Kaiko CEO Ambre Soubiran appears on a panel this Thursday titled 'The Building Blocks of the Crypto Industry'. Register for the event here

Consensus 2021 - Kaiko CEO Ambre Soubiran is thrilled to speak this year at Coindesk's upcoming Consensus event. More details to come! 
This Factsheet was written by Clara Medalie, with help from Anastasia Melachrinos and the Kaiko team. This is not financial advice. Any redistribution of charts appearing in this Factsheet must cite Kaiko as the sole provider and creator.
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