Market structure is shifting to cottage coins

Overall, it was another exciting week in the cryptocurrency space, with a new round of positive developments on the institutional front, including Citi’s (Citi) future crypto services, Goldman Sachs’ (Goldman) new bitcoin derivatives, Square’s multi-billion dollar cryptocurrency revenue, and Paypals stablecoin exploration program.

Market structure is shifting to cottage coins

Price movement: Ether continues to soar to new all-time highs in a week that is worth looking at for the development of obvious institutional investors.

Volume dynamics: In just one year, the BTC-USDT pair on Coin has gone from accounting for over 40% of total volume to just 6%.

Order Book Liquidity: Requests on the ETH-USD order book have outpaced bids over the past two weeks, implying a profit taking retracement.

Volatility and Correlation: Bitcoin and the USD index are no longer trading inversely.

Price Movement

Ether taking a leap? Ether entered pure price discovery mode and continued to soar, closing the week at just under $4k. Last week, for the first time ever, ETH spot volume as a percentage of BTC volume flipped, with ETH-USD trading at 51% of total volume, the first of its kind. The same “flip” happened in the options market as well. Meanwhile, bitcoin rose slightly this week, although it remains below the $60,000 price level.

Overall, it was another exciting week in the cryptocurrency space, with another round of positive developments on the institutional front, including Citi’s future crypto services, Goldman Sachs’ new bitcoin derivatives, Square’s multi-billion dollar cryptocurrency revenue, and Paypals’ stablecoin exploration program.

Volume Dynamics

Market structure is shifting to cottage coins

The market structure of Cryptocurrency is moving away from Bitcoin. Total trade volume on Cryptocurrency has skyrocketed over the past year and billions of trades are now being executed every day. However, what we should be interested in is the breakdown of trade volume to understand which pairs are receiving the largest share of trading volume. Specifically, we compare the BTC-USDT trade pair of Coinan to all other pairs traded on the exchange (1000+). The results show that over the past year, the BTC-USDT pair has risen from over 40% of the total to just 6% of the total.

What has happened in the past year to cause such a dramatic change in market structure? The raw number of pairs traded on Coin On has not changed much – instead, the overall market structure has shifted to the Ether, other coins and BNB markets. More and more traders are putting money into alternative cryptocurrency assets other than Bitcoin, a sign that the alternative currency market is growing and booming on the industry’s largest cryptocurrency exchange.


Market structure is shifting to cottage coins

The Latin American cryptocurrency market is poised for high growth. Last week, Latin American exchange Bitso closed a $250 million Series C funding round, valuing the exchange at more than $2.2 billion. The exchange has experienced unprecedented growth in the past year and is a leader in the rapidly expanding Latin American cryptocurrency industry. In just two years, trading volume on Bitso has soared from less than $100 million per month to more than $800 million by April 2021. Financial markets and services in Latin America have long been underdeveloped, but cryptocurrencies offer new possibilities for a growing number of users and use cases.

Market structure is shifting to cottage coins

The majority of USDC’s trading volume comes from Coinan, Uniswap, and Coinbase. with increasing real-world use cases and a landmark partnership with Visa, the USDC stablecoin is gaining more and more traction. However, competition among stablecoins in the cryptocurrency market is fierce, and USDC currently represents only a small fraction of the total stablecoin volume. In order to get a better understanding of where the volume is concentrated, the USDC trading volume of all exchanges in Kaiko’s coverage was plotted. We can see that Coinan, Uniswap (V1 and V2) and Coinbase account for nearly 80% of the total USDC volume. Coinan alone accounts for nearly half of the trading volume. Last week, we found that Tether volume was also concentrated in Coinan, indicating the exchange’s systemic importance in the stablecoin space.

Order Book Liquidity

Market structure is shifting to cottage coins

Introducing a new liquidity indicator. The ratio of bid depth to total market depth is a new indicator introduced by Kaiko together with the latest version of Fact Sheet, which can be used to get a liquidity view of the entire market for the spot order book. When the ratio is greater than 0.5, this means that the number of bids is greater than the number of requests. Now let’s see how Kaiko derives this metric:

For all currency pairs, Kaiko takes two snapshots of the order book containing all bids and asks within 10% of the mid-price every minute. From these order snapshots, we can aggregate what we call “bid depth” and “ask depth”. “Depth” refers to the total bid or ask price within 10% of the mid-price. For example, on Coinbase, an ETH-USD pair has a bid depth of 500, meaning that there are 500 ethers on the bidding side of the order.

Kaiko then uses the hourly or daily average price to measure the depth of the market. For example, an average hourly bid depth of 450 for an ETH-USD pair on Coinbase means that there are on average 450 Ether on the bid side of that order. This metric fluctuates throughout the day as liquidity changes.

Next, we can aggregate all the average bid and ask depth metrics collected on different marketplaces. For example, a total bid depth of 900 for ETH-USD on Coinbase, Bitstamp, and Gemini means that there are a total of 900 Ether on the bid side of these three orders on average.

After deriving an aggregated, market-wide measure of market depth for a set of exchanges, Kaiko can eventually divide the bid depth by the total depth using a simple ratio. Kaiko’s ratio is shown in the chart above and is derived from order book data collected from the 8 largest legal exchanges.

Explain this metric:When the ratio is higher than 0.5, this means that the average number of bids in the order book is greater than the number of offers. We can observe that in the past week, the average number of offers in the 8 ETH-USD order books was larger than the number of bids. This indicates that traders are preparing to take profit at higher price levels.


Market structure is shifting to cottage coins

The bitcoin market has plunged deeply. So where did all the bitcoins go? After a record bull market and continued high buying pressure, the number of bitcoins in the BTC-USD order book has plummeted over the past year.Kaiko charts the depth of the market since April 2020 and can observe that the number of bitcoins has fallen from an average of 20,000 bitcoin order books on eight exchanges to just 10,000 bitcoins. The market depth has been relatively stable since January, but fell sharply in the mid-April sell-off. A shortage of bitcoin supply is likely to blame for demand outstripping supply.

Volatility and Correlation

Market structure is shifting to cottage coins

The dollar and bitcoin. Throughout 2020, Bitcoin and the U.S. dollar have largely gone backwards and forwards. The U.S. Dollar Index (DXY) tracks the U.S. dollar in relation to a basket of foreign currencies. The epidemic-induced economic crisis and subsequent monetary stimulus caused DXY to plummet while bitcoin soared to new all-time highs. However, the index has recently shown signs of recovery as economic recovery brings the possibility of tapering stimulus measures. If this trend is any indicator of bitcoin price action, then DXY’s rise in 2021 could portend a loss for the cryptocurrency. However, as the epidemic draws to a close in the U.S., it could see a shakeout in financial trends as the market readjusts for the post-epidemic economy. Therefore, only time will tell if the DXY-BTC correlation remains a relevant indicator.


Market structure is shifting to cottage coins

As time goes on, stablecoins become more and more stable. Stablecoins usually struggle with one thing: maintaining a 1:1 peg to the dollar. However, over the past few years, stablecoins have become increasingly stable, which is evident when analyzing the 30-day rolling volatility of the 5 largest stablecoins. We can observe that by 2020, stablecoin volatility often fluctuates between 5-30%. However, since November 2020, volatility has fallen to below 5%. This is noteworthy considering that the overall price volatility in the cryptocurrency market has increased significantly since the beginning of the current bull market. We can also observe that Circle’s USD Coin (USDC) has been the most stable coin, with Tether (USDT) ranking second on average.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-05-11 16:33
Next 2021-05-11 16:42

Related articles