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Bitcoin Markets Are Increasingly Efficient
January 4th, 2021

This week in cryptocurrency markets:
  • Price Movements: Bitcoin markets are far more efficient today than they were three years ago, measured by comparing price discrepancies across exchanges.
  • Trading Volume: Bitcoin-Dollar volumes have not managed to top 2017's peak in large part due to the dispersion in volume across Bitcoin-Tether pairs.   
  • Order Book Liquidity: The quantity of bids on BTC-USD order books has consistently fallen since September. 
  • Volatility and Correlations: Bitcoin's inverse correlation with the U.S. Dollar index is growing stronger, while its correlation with traditional assets remains negative. 

Check out Kaiko's Year in Review here.
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Price Movements

7-Day Price Change
New year, new highs. 2021 has only just begun but Bitcoin and Ethereum have already soared to price levels that even the best technical analysts failed to predict. As of Monday morning, BTC was trading above $30k and ETH briefly breached $1k at speeds that far surpass 2017's bull run. XRP continues to plummet following a string of delisting announcements from major exchanges (Coinbase, Binance.US, OkCoin, eToro...), causing Litecoin to trade places with the embattled crypto-asset to become the third highest ranking non-stablecoin asset in terms of market cap. 


Bitcoin markets have matured since 2017. By looking at price discrepancies across exchanges, we can observe that Bitcoin markets are far more efficient today than they were three years ago. In 2017, the price that Bitcoin traded at varied considerably depending on the exchange, a sign that markets were disjointed and relatively inefficient. In 2020, information asymmetries have lessened and markets are increasingly integrated, which indicates that traders are overall more informed and rational.


ETH breaks $1k. On the tail of Bitcoin's bull run, ETH has skyrocketed above $1,000, jumping more than $300 in 24 hours to price levels not seen since 2017 and just a couple hundred short of its previous All Time High. Ethereum's renewed momentum began this summer during DeFi-mania and picked up gradually following the launch of ETH 2.0, CME's listing of ETH futures, and Bitcoin's rally, which has rippled over to other cryptocurrency markets. Ultimately, ETH ended the year as one of the best performing assets up more than 450%. 

Throughout 2020, a monumental shift in sentiment occurred among traditional investors for digital assets that appears to be more than just a passing investment trend. Our December market report compares the 2020 and 2017 market rallies, and looks at correlations, institutional participation, trading volumes, DeFi token returns and more.

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

Bitcoin-Dollar volume is less than 2017 peak. Although ATH's were broken numerous times over the past month, BTC-USD volumes have not topped 2017 highs. The seeming absence of bubble-like euphoria and the dispersion of trading volume across different Bitcoin pairs, in particular BTC-USDT, are likely explanations for the relative drop in USD volume. Additionally, institutions are largely credited with initiating this bull run, and they tend to purchase Bitcoin over-the-counter, which would not be reflected in exchange volumes.

XRP's implausible year. After nearly two years of stagnant prices and volumes, XRP seemingly out of nowhere began rallying late November to multi-year highs, which saw volumes climb parabolically. The rally was undoubtedly linked to an airdrop distributed to XRP investors, which saw many new traders scrambling to purchase the altcoin in advance of the event. Immediately following the airdrop on November 25th, prices crashed 8%, but this was only the start of a month of misfortunes. Following the announcement of the SEC's lawsuit against Ripple and a wave of exchange de-listings, XRP has tanked precipitously. 2021 holds little hope for the embattled crypto-asset should legal troubles persist. 
Order Book Liquidity

Spreads are increasing in response to volatility. Since the start of December, bid-ask spreads have been more volatile than normal due to Bitcoin's wild price swings. Bittrex spreads have been most affected, increasing 4x over the past few days. Spreads have doubled on all other exchanges as market makers brace for continued price movements. 

Bid depth has declined since September. As price volatility climbs, the total quantity of bid orders on Bitcoin-Dollar order books has noticeably fallen over the past few months. We can observe a clear trend line showing a downturn in orders placed within 10% of the mid price. Ask depth does not display a similar trend. 
Volatility and Correlations
Bitcoin's inverse correlation with the U.S. Dollar is growing stronger. As the dollar depreciated to multi-year lows, Bitcoin soared to record highs, resulting in an inverse correlation between the government-backed fiat and decentralized digital asset. A significant portion of Bitcoin price discovery occurs with U.S. dollar trading pairs, so a falling dollar likely has a non-negligible impact on price. Ultimately, this trend bolsters Bitcoin's value proposition as a hedge against economic uncertainty, which has been tested thoroughly this year in the midst of the pandemic.


Bitcoin's correlation with traditional assets stays negative. A trend that first emerged mid-December, Bitcoin's recent negative correlation with Nasdaq, the S&P 500 and Gold has held steady for the past couple of weeks. Part of why Bitcoin has become more attractive to institutional investors over the past three months is because of its lack of a long-term correlation with traditional markets. When the stock market falls, investors search for uncorrelated or inversely-correlated hedges, qualities that Bitcoin currently holds. The crypto-asset's correlation with Ethereum, on the other hand, has steadily climbed as both assets undergo strong rallies. 

Download Factsheet
Kaiko's pre-processed order book data is available through our REST API for 30,000+ trading pairs on 85+ exchanges, with 1 month of history available:

Market Depth - Compare liquidity across trading pairs with the cumulative quantity of bids and asks at intervals ranging from .1% to 10% from the mid price. 

Price Slippage - Simulate the bid-side slippage and ask-side slippage for custom buy and sell order sizes, calculated directly from raw order book snapshots.

Order Book Averages - Determine the average market depth, price slippage, and bid-ask spread for custom intervals of order book snapshots ranging from 1 minute -1 day. 
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Any redistribution of charts appearing in this Factsheet must cite Kaiko as the sole provider and creator. This Factsheet was written by Clara Medalie, developed by Anastasia Melachrinos with help from the Kaiko team. This is not financial advice. 
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