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The aftermath of $100million Bitcoin Purchase

Sudden Rise of Bitcoin Price

On April 3rd, around 1pm in Korean time, the cryptocurrency market starts to move very dynamic. As can be seen from the image below, the Bitcoin price from March 20 to April 3 shows no significant changes until 13:00 on April 2. But just two hours after, it rises by 16%, from $4,190 to $4,812. Since then, the price went up again to $5,270 and has been adjusted to $4,980.

The image below is a “Trade” page provided by PASTEL, which shows the candles, volume, and RSI in 1-hour increments, integrating Poloniex, OKex, Bibox, Upbit, Bittrex, Huobi, Binance, and HitBTC.

Poloniex, OKex, Bibox, Upbit, Bittrex, Huobi, Binance, and HitBTC, BTC-USDT Market, April 2 ~ April 3, 1-hour Increment

The image below is an enlargement of the chart to 5 minute increments from 10:00 am on April 2, and can see that the price has started to rise more accurately from about 13:30.

Poloniex, OKex, Bibox, Upbit, Bittrex, Huobi, Binance, and HitBTC, BTC-USDT Market, April 2 ~ April 3, 5min Increment

It shows that all major exchanges around the world, including Binance, are experiencing the same pattern of price increases.

The Aftermath of Inadequate Market Entry

Unofficially confirmed, $100 million worth Bitcoin was bought instantly and has resulted in a 20% increase in Bitcoin price. This was a great news for the Bitcoin holders but it is not desirable from the following two perspectives.

  • The soundness of cryptocurrency market
  • Decreased efficiency of Bitcoin purchase

The proposal(https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5164833-183434.pdf) recently submitted to the SEC for approval of the Bitcoin ETF Trust by Bitwise Asset Management has been devoted to explain why it is difficult to manipulate the Bitcoin price. However, this incident of increasing Bitcoin price was not helpful for their efforts. $100 million is not small, but small enough to manipulate 20% of the price of a Bitcoin with a market capitalization of $80 billion. It is expected to give a bad impression of crypto currency to the regulatory agencies around the world.

Either by stupidity or by intention, this Bitcoin buyout would have given a negative impact on other buyer’s efficiency. Now they should buy Bitcoin with 20% higher than their expectation. This is extremely inefficient for investors.

Distributed Execution Algorithm

There are various algorithms that you can use when you want to trade a large amount of cryptocurrency. After a very simple analysis of the market circumstances, it is easy to eliminate the impact on the market by using the widely known algorithm TWAP. Commonly know algorithms include:

  • TWAP: An algorithm that automatically executes orders based on a time weighted average price in a particular interval, regardless of the volume of the transaction
  • VWAP: An algorithm that automatically executes orders based on Volume Weighted Average Price.
  • PVOL: An algorithm that maintains the volume of transactions in a certain interval at a certain ratio to the total volume.

VWAP analyzes the previous transaction history to determine the number of orders to make and distribute. In the 24-hour running cryptocurrency market, it is difficult to analyze the pattern, which leads to errors in the calculation of transaction volume very often. Also, mostly the volatility is big when trading volume rises, so even though it is possible to make a contract price close to the market price, but it may not be optimal price. PVOL has a problem that it may take a long time to execute when maintaining the ratio of the transaction volume, and ineffective transactions may be accompanied by the fluctuations with a large volume of transactions. TWAP is a simple algorithm, but in many cases it creates efficient transactions because it does not attempt many transactions at the time of a sharp jump accompanied by a large volume of transactions.

It is hard to say either one of them is the best fit, but if you use the right algorithms for the right situation and intentions, there will be a difference in efficiency, but at least you can eliminate the impact on the market.

Many professional investors and institutions use OTC companies for large orders. OTC companies receive commissions by finding the best prices and buy them in many exchanges. To make this work, they use the algorithms listed above of modified algorithms.

PASTEL Order Algorithm

PASTEL provides one of order algorithm, TWAP with the monitoring service. PASTEL’s TWAP algorithm is designed to find the best price that can be executed in the spread of the current order book and to buy or sell it at an optimal price by ordering different prices over and over again. It is possible to check orders and their status in real time, you just need to have an account on the exchange to trade easily at the best price without affecting the market.

PASTEL’s TWAP Monitoring Page

In PASTEL, you can place TWAP order with just a few parameter settings as listed below.

  • Max Price for Buying (Or Min Price for Selling)
  • Total Amount
  • Child Order Amount
  • Tracking Frequency

The appropriate child order amount can be easily determined based on the quantity on the order book. We will introduce more details about TWAP, including operation method, how to set appropriate parameters, and when would be the good time to use it in other articles.

To Conclude

Cryptocurrency market is still immature and it needs to be equipped with expertise and a healthy environment for investment. PASTEL team wants to build a platform to provide the best environment for the cryptocurrency investment. We welcome everyone who are interested in managing their cryptocurrency assets efficiently, even if they are not professional traders or do not have professional knowledge and skills for trading.

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The fastest news about PASTEL will be posted in PASTEL Support Center and Facebook. If you have any questions or feedback, please feel free to contact us through our support center.

PASTEL: https://pasteltrade.net/home/
PASTEL Support Center: https://support.pasteltrade.net/en/support/home
Facebook: https://www.facebook.com/pasteltrade
Voost Homepage: https://voostlab.com

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Dongjoo Lee

Dongjoo Lee

CEO of Voost

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