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Bitcoin Reaches New All Time High
February 8, 2021

This week in cryptocurrency markets:
  • Price Movements: This morning, it was revealed that Tesla purchased $1.5B in Bitcoin, which instantly caused the price to shoot to a new all time high above $44k (and in the process, crashing several of the world's largest exchanges). Ethereum also reached a new ATH ahead of its CME futures debut. 
  • Trading Volume: The average trade size for ETH-USD markets is now nearly equal to that of BTC-USD, suggesting a recent influx of high-volume traders.
  • Order Book Liquidity: Average market depth for ETH-USD has doubled on Coinbase since October.
  • Volatility and Correlations: Extreme intraday volatility linked to Elon Musk has jolted markets twice in the past two weeks. 
Price Movements
Ethereum hits new high ahead of CME futures debut. New all time highs, extreme intraday volatility, growing network activity, and the highest transaction fees ever—Ethereum has had quite the start to the new year. The crypto asset closed the week up nearly 23% after reaching a new all time high above $1,700. The volatility comes ahead of the debut of Ethereum futures on the Chicago Mercantile Exchange, a milestone that promises to improve the efficiency of markets and enable a wider range of investors to gain exposure to the asset through a regulated investment product. CME has invested heavily into diversifying their crypto offerings over the past year in response to rising demand from institutional investors. 

Exchange tokens reach all time highs. Exchange tokens are issued by crypto exchanges and offer holders discounts on trading and other benefits. They are not the same as equity, but certainly serve as an indicator of the overall success of an exchange. The best known exchange token is Binance's BNB, which reached an all time high last week above $58. Binance currently lists 245+ trading pairs of which BNB is either the base or quote asset, and the token trades on 10+ exchanges. FTX's FTT token also reached a new ATH, and Bitfinex, Huobi and OKEx's tokens have fared well over the past year. Yet, Coindesk recently pointed out that the correlation between exchange token prices and reported volumes has weakened, which suggests that these tokens do not serve as a strong assessment of an exchange's growth as a business. 

The number of DeFi trading pairs on centralized exchanges has soared. Why trade a DeFi (decentralized finance) asset on a centralized exchange (CEX)? Each DeFi asset holds a unique function within their native decentralized protocols ranging from governance to staking to liquidity mining rewards. Starting around June 2020, centralized exchanges began listing these assets en masse, which on the surface may seem counter to the DeFi movement. Yet, CEX's have been crucial for boosting popularity for these assets and protocols while also aiding in the process of price discovery, which many DEX's struggle to accomplish with existing decentralized order book models. The full list of centralized exchanges that list DeFi trading pairs can be found here

We just released our latest monthly report covering the biggest market events in January. Highlights from the data-driven report include:  

1. Social media still heavily influences crypto markets. 
2. Intraday volatility is becoming more extreme for both BTC and ETH.
3. Ethereum's liquidity has improved significantly since last year with narrowing spreads and falling price slippage.
4. Shifts in trading patterns indicate an institutional presence.
5. Bitcoin had its highest trade volume ever in January, which caused downtime on multiple exchanges.

Download the report here or view it on Coindesk's Research Hub
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Trading Volume

How did Tesla buy $1.5B of Bitcoin? Volume has skyrocketed since January. More so than the average bull run. More so than any other time period in Bitcoin's history. There is no doubt that this is tied partially to the Tesla trade. What we know, based on recent public reports by Coinbase, is that OTC markets are not as widely used as previously thought for large trades. When executing MicroStrategy's $425 million buy order, Coinbase claimed to have tapped liquidity across a range of exchanges, which suggests that public order books are liquid enough to handle large orders broken apart and executed over time. Thus, it is very likely that Tesla's buy order was executed on some or all of the 8 exchanges included in the chart, which are the most liquid BTC-USD pairs. 

Ethereum's average trade size has increased. Much like Bitcoin trade sizes, Ethereum has also seen a significant increase in the average trade size executed on most exchanges over the past two years. The price of ETH has fluctuated from $120 to $1700 during this time, and the increase in trade size corresponds closely with rising prices. The sharpest increase has occurred over the past month as ETH broke new all time highs and saw more interest from institutional investors. This suggests that the balance of high-volume traders to retail traders has increased. The trend may also be tied to profit-taking, as sell orders are typically larger than buy orders, which would influence the overall average trade size. 

The average ETH trade is nearly equal to the average BTC trade. ETH is not typically the first crypto-asset that professional investors trade which is why ETH trade sizes have historically been smaller on average than BTC trade sizes. Yet, we can observe similar trends for the two assets over the past few months, with average trade sizes now nearly equal. Of note is the peak in trade sizes for BTC-USD in the summer of 2019, which was when a mini-bull run for Bitcoin occurred, with prices crossing $10k. This further suggests that prices are closely tied with average trade size. To calculate this measure, we took the average trade size for 8 BTC-USD and ETH-USD trading pairs, which can be viewed here.

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Order Book Liquidity
ETH market depth is increasing on Coinbase. Since October, there has been an uptrend in the quantity of ETH on Coinbase order books. This is notable considering BTC market depth has fallen on Coinbase, although the crypto asset has experienced similar extreme price movements. This suggests market depth is influenced by more than just price movements; the overall interest that market makers have for an asset and/or the actual supply of the asset available for market making activities also plays a role.  

Market depth is one of the more complicated liquidity measures to analyze, and it is difficult to attribute changes to just one factor. Because spreads and slippage have improved over time for ETH-USD markets, the increase in market depth is further evidence that these markets are becoming more liquid. However, the increase has not occurred on every exchange. In our January 25th Factsheet, we took the sum of depth across 6 exchanges which showed an overall decline. However, Coinbase is one of the most important ETH-USD markets, which is why the upwards trend in depth is notable (Coinbase has 37% of total market share of volume for ETH-USD). 

Price slippage for BTC is still less than ETH. We can observe that traders placing large sell orders for Bitcoin markets still experience less slippage compared with ETH markets. However, the gap between the two curves is narrowing. In general, most indicators show Ethereum catching up to Bitcoin in terms of overall market liquidity. The above chart does not include data through the March market crash, which saw slippage 10x for a couple of days. Rather, we selected the most stable markets and took an average across exchanges starting from the aftermath of the crash. Our price slippage is calculated using raw order book snapshots, taken twice per minute, and averaged over the course of 1 hour (with a 7-day moving average applied). 
Volatility and Correlations

Elon Musk is to thank for Bitcoin's volatility. Bitcoin's two extreme intraday volatility events over the past couple of weeks were both linked to Musk's interest in the crypto asset. His ability to move markets, both directly by tweeting, and indirectly by releasing news about Tesla's historic BTC purchase, have shaken markets unlike any event in recent history. The historic nature of his purchase should not be underestimated and will likely have a significant impact on markets in the near future. 
Thanks for reading and see you next week!

-Clara Medalie, 
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Kaiko to Work with Bloomberg and Object Management Group to Extend the FIGI Standard to Crypto Assets

We are pleased too announce that we have been selected to issue Financial Instruments Global Identifier (FIGI) starting in 2021. We will be introducing FIGI for cryptoassets at a webinar on February 24th. Register for the webinar here
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This Factsheet was written and produced by Clara Medalie, with charts developed by Anastasia Melachrinos, and help from 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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