Market structure is shifting towards altcoins

Price action: Ethereum continued to soar to new all-time highs during the week, and it is worth noting the development of obvious institutional investors.

Volume Dynamics: In just one year, Binance’s BTC-USDT trading pair has gone from accounting for over 40% of total trading volume to just 6%.

Order Book Liquidity: Request volume on the ETH-USD order book over the past two weeks has been greater than bid volume, implying a profit pullback.

Volatility and Correlation: Bitcoin and the US Dollar Index are no longer trading in opposite directions.

Ethereum Leap? Entering pure price discovery mode, Ethereum continued to soar, closing the week just below $4k. Last week, the ratio of ETH spot trading volume to BTC trading volume reversed for the first time, and ETH-USD trading volume accounted for 51% of the total trading volume, which was the first transaction of its kind. The same "flip" happens in the options market. Meanwhile, bitcoin has edged up this week, although it remains below the $60,000 price level.

The U.S. House of Representatives proposed the "Digital Asset Market Structure and Investor Protection Act": Golden Finance reported that U.S. Congressman Don Beyer proposed the "Digital Asset Market Structure and Investor Protection Act", which will create a far-reaching digital asset market. regulatory framework. The bill seeks to describe the treatment of crypto assets under five securities laws, the Commodity Exchange Act and the Bank Secrecy Act, as well as the Federal Reserve's treatment of stablecoins and possibly digital fiat currencies. The bill would force the SEC and CFTC to provide legal clarity to most digital asset markets through a joint rulemaking process. Digital assets would also be added under "monetary instruments" in the Bank Secrecy Act, meaning cryptocurrencies would be subject to established anti-money laundering, record-keeping and reporting standards. In addition to the institutions already established, the bill would also create a digital asset transaction repository in which transactions not made public on the blockchain would be reported. The proposed law would also give stablecoins a big boost, requiring any fiat-backed tokens to be approved by the finance minister before they can be issued. The Act explains that no later than 90 days after the date of enactment of this Act, the Minister of Finance shall establish an application process whereby the Minister may, subject to necessary and appropriate terms and conditions, approve or reject persons wishing to issue fiat-based stablecoins. In addition to oversight of dollar-pegged tokens, the bill authorizes the Federal Reserve to issue its own digital dollar and distinguishes existing private dollar stablecoins from being U.S. legal tender. [2021/7/30 1:23:38]

Overall, it was another exciting week for the crypto space, with fresh positive developments on the institutional front, including Citi's future crypto services, Goldman's new Bitcoin derivatives, Square Billions in cryptocurrency revenue, and Paypal's stablecoin exploration program.

Fed's Harker: It's important to understand the market structure of digital currencies: Fed's Harker says cryptocurrencies don't make up enough of a financial system to pose a financial stability risk. There is still a lot of work to be done before we are ready to actually consider the Federal Reserve starting to use digital currencies. Before going any further with digital currencies, it is important to understand the market structure of digital currencies. (Golden Ten) [2021/5/22 22:31:01]

Binance’s market structure is moving away from Bitcoin. Binance’s total transaction volume has soared significantly over the past year, and billions of transactions are now executed every day. However, what we should be interested in is the breakdown of trade volumes to understand which trading pair gets the largest share of trade volume. Specifically, we compared Binance’s BTC-USDT trading pair with all other trading pairs (1000+) traded on the exchange. The results show that over the past year, the BTC-USDT pair has risen from over 40% of the total to just 6%.

What happened in the past year to cause such a drastic change in market structure? The raw number of trading pairs on Binance has not changed much - instead, the overall market structure has shifted towards Ethereum, other coins and BNB market. A growing number of traders are putting money into alternative crypto assets other than bitcoin, a sign that the alternative currency market is growing and thriving on the industry's largest cryptocurrency exchange.

JPMorgan Chase: Bitcoin market structure is more resilient than traditional assets: Golden Finance reported that according to a new report from JPMorgan Chase Bank strategists, cryptocurrencies have largely survived the market frenzy in March, which shows that cryptocurrencies "as an asset Categories are long-lived". However, "price action suggests they will continue to be used as a vehicle for speculation rather than a means of exchange or store of value," the strategist said. In the end, the report claims that Bitcoin’s market structure is more resilient than currencies, stocks, treasuries, and gold. [2020/6/13]

The Latin American cryptocurrency market will usher in rapid 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 over the past year and is a leader in the rapidly expanding Latin American cryptocurrency industry. In just two years, transaction volume on Bitso has soared from less than $100 million per month to over $800 million in April 2021. Financial markets and services in Latin America are chronically underdeveloped, yet cryptocurrencies offer new possibilities for a growing number of users and use cases.

Three Arrows Capital CEO: The crypto market with a structure similar to that of the foreign exchange market may experience greater "fragmentation" in the future: Su Zhu, CEO of cryptocurrency hedge fund Three Arrows Capital, said that at present, the cryptocurrency market structure is becoming different from traditional The markets are similar. He said: "In the foreign exchange market, a lot of trading is done by companies that are not very well funded, and they use foreign exchange institutional brokers to fill a large number of orders in the market. So I think eventually you will see cryptocurrencies in this direction. development.” Zhu also pointed out that the crypto market, which has a similar structure to the foreign exchange market, may see greater “fragmentation” in the future. He pointed out that for the crypto market in the next few years, regional exchanges will have great potential, while other entities are market diversification and efficiency improvement. (AMBcrypto)[2020/6/8]

Most of USDC’s trading volume comes from Binance, Uniswap, and Coinbase. With more real-world use cases and a milestone partnership with Visa, the USDC stablecoin is gaining traction. However, the competition between stablecoins in the cryptocurrency market is fierce, and USDC currently only accounts for a small part of the total stablecoins. In order to better understand where the trading volume is concentrated, the USDC trading volume of all exchanges in Kaiko's coverage area is plotted. We can see that Binance, Uniswap (V1 and V2), and Coinbase account for nearly 80% of the total USDC volume. Binance alone accounted for nearly half of the trading volume. Last week, we found that Tether volume was also concentrated on Binance, suggesting that the exchange is systemically important in the stablecoin space.

Voice | Digital Renaissance Foundation Cao Yin: Using blockchain technology, the energy market structure will be transformed: Jinse Finance Report, executive deputy director of the Advanced Blockchain Research Institute of Tsinghua Yangtze River Delta Research Institute, and chairman of the Digital Renaissance Foundation Manager Cao Yin said that the application of blockchain technology has been extended to many fields such as digital finance, Internet of Things, intelligent manufacturing, supply chain management, and digital asset transactions. At present, major countries in the world are accelerating the development of blockchain technology. my country has a good foundation in the field of blockchain, and it is necessary to accelerate the development of blockchain technology and industrial innovation, and actively promote the integration and development of blockchain and economic society. He believes that what the blockchain changes is the form of trust. It solves an age-old problem: establishing trust between strangers. It achieves "decentralization". Cao Yin believes that the blockchain will completely change the underlying structure of the financial system, and the financial restructuring of the blockchain will strengthen the differentiation of financial formats unprecedentedly. The strong will become stronger and the weak will be replaced. When it comes to energy, he said that multilateral relations in the energy industry are becoming more and more complex. After using blockchain technology and introducing a decentralized transaction model, the market structure will be transformed. However, the application of blockchain in the energy industry requires a good foundation, such as the maturity of the technology, the permission of the policy, the maturity of the market, and the maturity of the Internet of Things system. [2020/1/14]

Introducing a new liquidity metric. The ratio of Bid Depth to Total Market Depth is a new metric Kaiko has introduced with the latest version of its Fact Sheet, which can be used to obtain a view of the entire market liquidity of the spot order book. When the ratio is greater than 0.5, it means that the quantity bid is greater than the quantity requested. Now see how Kaiko derives this metric:

For all pairs, Kaiko takes two order snapshots per minute that contain all bids and asks within 10% of the median price. From these order snapshots, it is possible to 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, the bid depth for the ETH-USD pair is 500, meaning that the order has 500 ETH on the bid side.

Kaiko then takes the hourly or daily average price as a measure of market depth. For example, the average hourly bid depth for the ETH-USD pair on Coinbase is 450, meaning that there is an average of 450 ETH on the bid side of the order. The indicator fluctuates throughout the day as liquidity changes.

Next, we can aggregate all average bid and ask depth metrics collected across different markets. For example, the total bid depth for ETH-USD on Coinbase, Bitstamp, and Gemini is 900, meaning that the bidders on these three orders have an average total of 900 ETH.

After deriving an aggregated, market-wide measure of market depth for a group of exchanges, Kaiko can finally use a simple ratio of bid depth divided by total depth. Kaiko's ratio is shown in the chart above, which is derived from order book data collected from the 8 largest fiat exchanges.

Interpreting this metric: When the ratio is above 0.5, it means that the average bid quantity on the order book is greater than the ask quantity. We can observe that the average ask volume on the 8 ETH-USD order books is greater than the bid volume over the past week. This shows that traders are preparing to take profits at higher price levels.

The Bitcoin market plunged in depth. So where have all the bitcoins gone? The amount of bitcoin on the BTC-USD order book has fallen sharply over the past year following a record bull run and sustained high buying pressure. Kaiko charted the depth of the market since April 2020, and it can be observed that the number of bitcoins has dropped from an average order book of 20,000 bitcoins across eight exchanges to just 10,000 bitcoins. Depth of Market has been relatively stable since January, but saw a sharp drop in the mid-April sell-off. The short supply of Bitcoin is likely to be the culprit where demand outstrips supply.

Dollars and bitcoins. Throughout 2020, Bitcoin and the U.S. dollar have largely been in opposite directions. The U.S. dollar index (DXY) tracks the greenback against a basket of foreign currencies. The economic crisis triggered by the outbreak and the subsequent monetary stimulus caused the DXY to plummet, while Bitcoin soared to a new all-time high. However, the index has recently shown signs of recovery as the economic recovery brings with it the possibility of tapering stimulus. If this trend is any indicator of Bitcoin price action, a rise in DXY in 2021 could spell losses for the cryptocurrency. However, as the pandemic draws to a close in the U.S., financial trends could see a jolt as markets readjust for a post-pandemic economy. Therefore, only time will tell if the DXY-BTC correlation remains a relevant indicator.

Stablecoins have become more and more stable over time. Stablecoins generally struggle with one thing: maintaining a 1:1 peg to the U.S. dollar. However, stablecoins have become increasingly stable over the past few years, and this is evident when analyzing the rolling 30-day volatility of the five largest stablecoins. We can observe that in 2020, stablecoins often fluctuate between 5-30%. However, since November 2020, volatility has fallen below 5%. This is notable given that overall price volatility in the cryptocurrency market has risen significantly since the start of this bull run. We can also observe that Circle’s USD Coin (USDC) has been the most stable coin, with Tether (USDT) ranking second on average.

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