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The Average Bitcoin Trade Size Has Doubled
March 29th, 2021

This week in cryptocurrency markets:
  • Price Movements: Crypto assets powering blockchain networks have seen triple digit returns throughout 2021 ranging from +100% to +600%. 
  • Trading Volume: The average trade size for BTC-USD markets has doubled on most exchanges since October 2020.
  • Order Book Liquidity: The bid-ask spread is narrowing for crypto-fiat trading pairs after a prolonged period of volatility. 
  • Volatility and Correlations: USDC, a stablecoin that will be settled by Visa, has become less volatile over time and now rarely drifts from its 1-to-1 dollar peg. 

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Price Movements
Are crypto markets consolidating? Following a seemingly endless period of extreme volatility and returns, it appears that cryptocurrency markets have entered a phase of consolidation. Trade volumes and dollar inflows have fallen over the past few weeks along with open interest for Bitcoin futures. There is still plenty to be bullish about, though, including Fidelity's plans for a Bitcoin ETF, Tesla enabling crypto payments, and Visa supporting USDC settlement. Bitcoin closed the week down 3%, but broke above $58k early Monday morning, which suggests that buying pressure is still strong. 

Record-setting returns for blockchain tokens. While the Ethereum and Bitcoin blockchains are the best known in the crypto industry, there are quite a few competing networks that have recently gained attention for their scaling potential. Alternative blockchains are often referred to as 'Ethereum-killers' for their solutions to problems that the Ethereum network has historically struggled with.

It is no surprise that the tokens powering these competing blockchains have seen huge returns over the past few months as Ethereum's growth continues to be restricted by high transaction fees. The Solana blockchain's SOL token has gained more than 600% YTD while the Cardana blockchain's ADA token has risen more than 500%. ADA was at one point the third largest crypto asset by market cap. Despite record-setting returns, Ethereum's on-chain network activity still remains magnitudes greater than any competing blockchain network.
Trading Volume
As Turkish lira plunges, Bitcoin volume soars. BtcTurk is the largest cryptocurrency exchange in Turkey and over the past year has become increasingly popular in a country undergoing severe currency instability. Since mid-2019, Turkey's President Erdowan has replaced three central bank chiefs, most recently on March 19th, which caused the lira (TRY) to plummet 15% against the dollar last week.

The combination of currency instability and a broader crypto bull run has led to a huge increase in trading volume on btcTurk as people rush to exchange their devalued savings for crypto. In fact, when looking at Bitcoin returns, we observed that BTC-TRY is up 94% YTD while BTC-USD is up only 77%, which suggests demand for Bitcoin in Turkey is above the market standard. Cryptocurrencies have proven popular in countries with currency instability and rising inflation such as Venezuala, Lebanon, and Argentina. 

Institutional investors pause USD inflows. The ratio of BTC-USD to BTC-USDT trading volume can be considered an indicator of institutional inflows into crypto, assuming that institutional investors prefer using regulated fiat exchanges such as Coinbase, as opposed to exchanges like Binance which only offer stablecoin trading pairs. From October to December 2020, USD volumes soared as Bitcoin underwent a record-setting bull run driven by institutional traders. However, throughout 2021 this trend has reversed. Since January 1st, the proportion of BTC-USD volume has fallen 10%, from 37% to 27% of total volume. The majority of Bitcoin trades are still executed against Tether, which recently reached a settlement with the New York Attorney General, clearing the way for the stablecoin's continued growth. 

This measure is calculated using BTC-USD and BTC-USDT volume data aggregated across 17 reputable exchanges. 

Average trade sizes have soared since October. Since the start of Bitcoin's bull run, the average trade size for BTC-USD trading pairs has increased on nearly every exchange. On Coinbase, the average trade size grew from ~$1.3k to ~2.5k, on Kraken from ~$2.8k to ~$5.1k, and on Bitstamp from ~$3.6k to $6.4k. Yet, nothing beats LMAX Digital's growth from ~$6.8k to ~$17.6k per trade. LMAX Digital is an exchange marketed towards institutional traders, which could explain why trade sizes are so much higher compared with other exchanges that often have a more retail trader base. While trade sizes have increased overall, they have flatlined over the past couple of months as the pace of institutional dollar inflows has slowed down. 

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Order Book Liquidity
Spreads are improving for BTC-USD pairs. January was one of the most volatile months in Bitcoin's history, resulting in a prolonged period of wider-than-average spreads across exchanges. Market makers will widen spreads as a way to manage risk if volatility expectations are high. Since the beginning of February, spreads have narrowed considerably on every exchange analyzed, which suggests that volatility expectations have decreased. 

Coinbase and Bitfinex have the deepest order books. Coinbase and Bitfinex have the deepest order books out of all the fiat exchanges in cryptocurrency markets, meaning they can support the most market orders and likely play a big role in price discovery. These two exchanges also have the most volatile market depth, which has fluctuated considerably over the past two months. With narrowing spreads, we would expect market depth to be increasing on most exchanges as market makers add liquidity to order books. However, we only observe an increase in depth on Bitfinex. Depth on most other exchanges has stayed steady since February 1st. 
Volatility and Correlations
USDC has become more stable over time. This morning, visa announced that it would allow payments to be settled using the stablecoin USD Coin, a product of Coinbase and Circle. The value of USD Coin is pegged to and fully backed by the U.S. Dollar and managed by the Centre consortium. Over the years, its value has occasionally drifted from its dollar peg, which can be observed in the chart above. However, since 2020, USDC has become increasingly stable, and now rarely drifts more than $.001 above or below $1. Visa has become the first major payments network to allow settlements using USDC which is a big step in the widespread adoption of digital assets.

Below, we chart the USD hourly exchange rate over the past week for some of the biggest stablecoins:

Compared with its competitors, USDC is one of the most stable stablecoins, with USDT and BUSD closely tied. Over the past week, DAI has consistently traded at a premium to the dollar while PAX's value has fluctuated dramatically from both above and below its dollar peg. To maintain their dollar pegs, stablecoins must be consistently monitored by their issuing organizations to ensure that the supply and demand for the coins are balanced. 

Thanks for reading and see you next week!

-Clara Medalie,  (email me for any feedback or suggestions!)
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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

MIT Bitcoin Expo - Kaiko's US Lead Sacha Ghebali will be speaking at the annual Bitcoin Expo, hosted virtually. This year's theme is the "New Normal." Register for the free event here
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.
Copyright © 2021, All rights reserved.

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