Crypto analysis — arbitrage opportunities
At Algologic.ai, we collect trading data from various exchanges and perform data analysis to explore various trading strategies. In this article we present a brief analysis of price, volume, and number of trades that can be used for selecting optimum exchanges for arbitrage strategies.
Coin: bitcoin
Period: 2018-2019
Aggregation bar: 6h
Exchanges analysed: bitfinex (btcusd), binance (btcusdt), hitbtc (btcusd)
Price of the bitcoin at various exchanges
In the course of 2018 the price of bitcoin sunk more than 70%. Independent on the price dynamics, there can be opportunities for an arbitrage trading.
For example, if the difference in coin prices at various exchanges is above the fees that need to be payed to transfer assets between the exchanges, there is a opportunity for an arbitrage between the exchanges when one can buy coins at one exchange at lower price, transfer them to another exchange, and sell them there at higher prices. Of course taking the risks of potential price change during the transfer.
Another possibility is to split the assets into fiat and coins on each exchange. If the arbitrage opportunity appears, buy the coins at one exchange, and sell the same amount at another exchange, and then perform the opposite actions when the prices converge and/or diverge in opposite to the initial arbitrage directions.
The relative price difference of bitcoin at various exchanges reached 6% differences and stayed at 2–3% difference for a substantial amount of time in 2018. 0.5% to 1% fluctuations happened on a daily basis at the beginning and at the end of the year, with a calm-period in august to mid-november.
The same data in a distribution histogram format shows the number of events (last prices in candlesticks of 6h) versus price relative difference over 2018.
Volume analysis
Another very useful indicator to observe is traded volume. One can see how the exchanges were evolving in time, and how the price moves were correlated with the traded volume. For example, the traded volumes at bitfinex and binance were mostly decaying, with large increase in the mid-november when bitcoin price quickly dropped. Hitbtc traded volume was in contrary gradually increasing, and by the end of 2018 it become comparable to those of the other two exchanges.
The total traded volume of an exchange consists of the ‘buy’ volume, when ‘taker’ orders are executed against the ask part of an order book; and the ‘sell’ volume, when ‘taker’ orders are executed against the bid part of an order book. Another interesting exchange-inherent feature can be derived from this: a distribution of the ratio of the ’buy’ volume at an exchange to the total traded volume at this exchange. In the figure below you can see such distribution for bitcoin for 2018.
For each 6h interval in 2018, we calculated the ratio of the ’buy’ volume to the total traded volume. Roughly, most of events are within 30–70% for bitfinex, and within 40–60% for hitbtc and binance. The larger this spread, the higher the relative number of the extreme events, e.g. when the ’sell’ traded volume was dominated by the ’buy’ traded volume and vice versa. This can be used to estimate relative importance of the exchanges on defining the price direction.
Number of trades analysis
Another interesting indicator is the number of trades. The figure below shows total number of trades in each exchange aggregated by 6h. As the traded volume, the number of trades also consists of ‘buys’ and ‘sells’, i. e. ‘taker’ orders executed against the ask and the bid part of the order book respectively. For all three exchanges, the trend is sharp increase during strong price fluctuation, followed by slow decay until another strong price fluctuation occurs.
The distribution of the ratio of the market ’buys’ versus total number of trades is shown in the figure below. As in the case of volume, bitfinex also has larger number of cases when the ratio of ‘buys’/‘sells’ to the total trades during 6h intervals reached 30%/70%.
Similar analysis can be performed on request for various coins, exchanges, and aggregation bars. Please contact us at info@algologic.ai.
