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Volatility Sweeps Crypto Markets
April 26th, 2021

This week in cryptocurrency markets:
  • Price Movements: After Coinbase announced they would list Tether, a premium emerged and has persisted for days.  
  • Volume Dynamics: Ethereum trade volume is growing relative to Bitcoin, a sign that traders increasingly consider the asset a viable investment. 
  • Order Book Liquidity: Binance.US is low liquidity compared to Binance Global and its biggest U.S. competitor, Coinbase. 
  • Volatility and Correlations: After two months of declines, 20D volatility began to increase again following a week of wild price swings. 
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Price Movements
A volatile week for crypto markets. Ethereum rose to a record high last Thursday while Bitcoin failed to recover following its crash below $60k, ending the week down more than 13%. Overall, surging intraday volatility and multiple crashes have forced many to seek narratives to explain the market movements. However, in cryptocurrency markets data often speaks louder than narratives, which are often unfalsifiable and tenuous at best. For example, last week's 15% price crash occurred in the early hours of Sunday morning a time of low liquidity and weak trading volumes. Regulatory concerns in India and a drop in hashpower in China were widely to blame, but these events simply do not tell the whole story. While market events surely influence price movements, order book dynamics or large market orders can often have an inordinate impact on crypto prices that wouldn't be the case in traditional markets. 

Coinbase lists USDT and a premium emerges. Tether (USDT) is the largest stablecoin and denominates the most currency pairs out of any other crypto or fiat asset. USDT is systemically important in cryptocurrency markets and plays a crucial role in Bitcoin price discovery, yet some regulatory compliant exchanges have been holding out on listing the controversial stablecoin which has been the subject of intense scrutiny for years. Thus, Coinbase's announcement that they will list six USDT trading pairs serves as vindication and could usher in a new era in cryptocurrency markets that sees volume shift away from fiat currencies. Ironically, the announcement caused Tether de-peg from its 1-to-1 USD price and a premium has persisted since April 23rd. 

Coinbase ends the week in the red. Coinbase has now completed its first full week of trading on Nasdaq and first full week of trading as a tokenized stock on FTX, closing at just under $300. While Coinbase is well below its market open of $410, it has held above its reference price of $250 in what many still consider to be a successful public debut. COIN on Nasdaq only trades for 8 hours a day while COIN on FTX trades 24/7, and we can observe that these two markets occasionally diverge from one another. However, tokenized markets will likely become more efficient the more that people trade and supply liquidity. Tokenized equities entitle holders to corporate actions such as dividends and provide more flexibility, such as the option to purchase fractionalized shares at any time of day, trade through an API, and supply liquidity to order books. Exchanges like FTX could be paving the way for a re-shape of traditional equities markets, enabling a new class of investor easy access to U.S. stocks.  
Volume Dynamics
Ethereum's popularity is growing. Ethereum is significantly outperforming Bitcoin and is currently up 217% YTD compared with Bitcoin's 67%. Bitcoin has always been the highest volume crypto asset, but over the past year Ethereum has gained an increasing proportion of market share. Ethereum volume now accounts for 36% of total volume (aggregated across all exchanges which offer both a BTC-USD and ETH-USD trading pair), its highest level yet. The shift has occurred as ETH undergoes a record-setting bull run and usage of the Ethereum blockchain network surges. Institutional investors increasingly consider ETH as an investible asset, evidenced by the growing number of regulated exchange-traded products and derivatives. 

Crypto trading in Turkey slows down. Crypto activity in Turkey hit headlines last week following the Turkish government's ban on crypto transactions and the CEO of Turkish exchange Thodex reportedly vanishing in a supposed exit scam. Thodex has since gone offline, so we decided to look at BTC trade volume on competitor exchange BtcTurk. Over the past few months, the Turkish Lira has undergone extreme levels of inflation which coincided with a sharp increase in trade volume, peaking at more than $200 million a day in early January. However since then, volumes have declined amidst growing regulatory concerns and uncertainty. Today, Bitcoin volumes average just over $50 million a day, which is still more than double the average daily volume last year. 

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

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Order Book Liquidity

Traders prepared to buy the dip.
Last week's 15% selloff eviscerated market depth on exchanges. Market depth is prone to evaporate during extreme volatility because most market making activity is algorithmic, thus orders are automatically removed during a sell-off (which can in turn exacerbate a price crash). Above, we chart aggregated 10% depth which measures the quantity of bids and asks at a range of 10% from the midprice. We can observe that the quantity of bids began to rise over the weekend at a range of 10% from the midprice, which suggests traders were placing bids in expectation of further price declines. 
1% market depth shows a different trend. On the other hand, 1% depth (the quantity of bids and asks within 1% of the midprice) has not recovered to pre-crash levels which suggests market makers are still cautious about placing orders close to the midprice. We can also observe that the quantity of bids spiked and then crashed in the hours preceding last week's sell-off. 1% market depth has a bigger impact on price movements because these limit orders are more likely to be executed as trades because they are closer to the mid price.


Binance.US liquidity trails both Binance Global and Coinbase. Last week, Binance.US, the U.S.-based exchange affiliate of Binance Global, announced that former bank regulator Brian Brooks would take over as CEO. The news comes on the tail of Coinbase's successful public listing in an increasingly competitive exchange environment. Coinbase dominates North American markets, having earned its institutional-friendly reputation as a regulatory compliant exchange while Binance's reputation among regulators has historically been antagonistic.

Thus, the news that Binance's U.S. affiliate hired a former regulator could be interpreted as a direct threat to Coinbase. However, when looking at the data, it is clear that Binance.US has a very long way to go before it reaches parity to either Coinbase or Binance Global. Above, we chart the bid-ask spread for the trading pairs BTC-USDT and BTC-USD on Binance.US, Binance Global, and Coinbase. Binance Global does not have regulatory approval to list trading pairs denominated in U.S. Dollars, unlike Binance.US. Typically, Dollar-denominated pairs are more attractive to institutional traders than Tether-denominated pairs (the stablecoin issuer only recently settled with U.S. regulators). 

Bid-ask spread is an indicator of liquidity: the wider the spread, the less liquid the market. We can observe that spreads for Binance.US's BTC-USD and BTC-USDT trading pairs average more than 10 basis points, nearly ten times greater than spreads on Binance Global and Coinbase. 

Market depth on Binance.US also trails that of Coinbase and Binance Global: 


Market depth is another indicator of spot market liquidity: the greater the quantity of Bitcoin on a trading pair's order book, the more liquid the market. In order for Binance.US to catch up to its U.S. competition, it will need figure out a way to improve order book liquidity to be able to support efficient spot markets. 

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
20D and 180D volatility on the rise. News of Biden's proposed tax on capital gains tanked both equities and crypto markets on Friday. The past week's volatility has caused 20D volatility to begin to spike following more than two months of declines after reaching one of its highest levels ever in early February. 180 day volatility reached its highest level since September reflecting a long-term increase in volatility across crypto markets.

Thanks for reading and see you next week!

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