Weekly Market Report - 23rd March 2019
This weekly report aims to provide an overview of the crypto markets focusing on secondary market trading. Though nothing here is investment advice, we hope this provides some useful and targeted information.
Weekly Market Report - 23rd March 2019
This week’s report discusses the various metrics used to measure the level of liquidity on cryptocurrency exchanges and compares the order book depths of top exchanges to their reported trading volume.
Market Overview
We are focusing our market overview on the top 100 tokens from CoinMarketCap and the sector classification is roughly in line with what MyToken uses with some minor modifications. To be sure, we will be continuously updating the sectors and their constituents as we develop a deeper understanding of the crypto ecosystem.
This week’s new participants in the top 100 coins:
KNC, NULS
Coins that dropped out of the top 100 coins compared with last week:
ETP, POWR
Since POWR was the only coin in the energy sector, this week we removed this sector from our market overview.
Rolling Returns of Top 100 Tokens by Sector
Returns of the top 100 Tokens by sector from February 20, 2019, to March 22, 2019
Returns vs Volatility
This is a look at mean and total daily returns vs volatility for the 15 sectors as well as the overall crypto and equity market. Some sectors only contain one or two coins/tokens while others have more than a dozen.
Mean Daily Return vs Volatility from February 20, 2019, to March 22, 2019
We abbreviated the names of several sectors to make it easier to view:
M = Market
DC = Digital Cash
CP/MP = Computing Power/Mining Pool
A/M = Advertising/Media
G/E = Gaming/Entertainment
C = Classics
D/GT = Dividend/Governance Token
E/T = Exchange Token
OC/I = Off Chain/Interoperability
Correlation Between Daily Returns of Each Sector
Correlation between daily returns of each sector from December 21, 2018, to March 22, 2019. Correlation ranges between -1 and 1. A correlation close to 1 or -1 means a very positive or negative relationship between the two subjects, respectively. A correlation close to 0 means no linear relationship between the two subjects.
The above figure shows the correlation between the daily returns of each sector. This week we see that other than stablecoins, correlations with the overall crypto market are low for the social/communication, gaming/entertainment and computing power/mining pool industries. For those interested, please look into Project Pai, Enjin Coin and Maximine Coin.
Focus Spotlight — Order Book Depth (Part 1)
While Bitcoin, Ethereum and cryptocurrency related projects are constantly making headlines, more and more people are joining the ecosystem and opening accounts to trade crypto. With more than a hundred crypto exchanges available on the market, choosing the right one may be more difficult than it seems. For most traders, the two most important aspects to consider involves the level of security as well as the liquidity on the platform.
Currently, most crypto websites offering real-time market data rank the “Top Crypto Exchanges” based on the overall trading volume as well as the number of trading pairs. However, various research reports over the past year have suggested that the majority of crypto exchange have been inflating their volumes, as wash trading can be conducted easily on a centralized database.
In order to find a metric that better measures the level of liquidity on an exchange, first let’s take a look at its definition. Liquidity refers to the degree to which a particular asset can be quickly bought or sold without affecting the general stability of its price. Therefore, for a trading pair to have sufficient liquidity, other than having an adequate amount of participants actively trading on the market, which can be reflected in trading volume, the pair must also have an order book that offers enough bid and ask orders near the market price. This will ensure that prices will not slip towards one side after a small number of trades. The level of stability is shown by the order book depth.
In the following, we analyze the order book depth for several popular crypto exchanges in the market. We select the ETH/USD or ETH/USDT trading pairs on these exchanges and evaluate their order book depths by calculating the number of ETH it takes to push prices down by 0.3%, 0.5% and 1% relative to its best bid price. In this analysis, we use the order book snapshots taken on March 9th, 2019. Snapshots are taken every two hours. The numbers presented in the following are the averages of the 12 snapshots.
The chart above reveals that the level of liquidity measured using order book depth varies by a significant degree across different exchanges. Now that we have the data for analyzing market depth, we compare these metrics to the daily trading volume of these trading pairs. Assuming that a crypto exchange has sufficient liquidity, a trading pair with a large volume should be accompanied by a high number of orders at each price, as reflected in the order book depth.
Based on the charts above, it appears that volume itself may not be an ideal indicator for liquidity, as some exchanges reporting strong volumes have poor market depth. This can result in price instability, which brings increased risks to traders. We are not here to accuse any crypto exchanges of creating artificial volume, as a few large trades on that day may have pushed up the volume but are not reflected in the order book at the time of recording. Instead, we are simply comparing the different metrics that can help evaluate the overall liquidity of these trading platforms.
Given that this study uses order book snapshots taken in a single day, further research can be done to evaluate whether order book depth changes throughout the market cycle. In a future report, we will analyze these changes and examine whether market depths remain consistent across different time periods.
We hope you enjoyed this week’s report. Stay tuned for future updates!
Data Source
We included data from sources such as CoinMarketCap for analyzing price movements, volatility, mean daily return, and correlations between each sector; MyToken for sector breakdown; CoinAPI for order book snapshots; and TradingView for daily trading volume data.
Stay Tuned Here
KRONOS is a leading quantitative research firm based in Taipei, Shanghai and Beijing. We’re bringing new asset management strategies to the crypto world by leveraging our combined decades of experience trading in global traditional markets.
Website: https://kronostoken.com/
Telegram: https://t.me/Kronos_E
Twitter: https://twitter.com/KronosToken
Linkedin: https://www.linkedin.com/company/kronostoken/
