A summarizing review of what has been happening at the crypto markets of the past week. A look at trending sectors, liquidity, volatility, spreads and more. The weekly report in cooperation with market data provider Kaiko.
This week in the cryptomarkets:
- Price Movements: Bitcoin markets are far more efficient today than they were three years ago, measured by comparing price discrepancies across exchanges.
- Trading Volume: Bitcoin-Dollar volumes have not managed to top 2017’s peak in large part due to the dispersion in volume across Bitcoin-Tether pairs.
- Ethereum close to ATH: Ethereum (ETH) has started catching up with Bitcoin, ended the year with 450% and broke through $1k, close to its all-time high.
- Volatility and Correlations: Bitcoin’s inverse correlation with the U.S. Dollar index is growing stronger, while its correlation with traditional assets remains negative.
Bitcoin markets have matured since 2017
By looking at price discrepancies across exchanges, we can observe that Bitcoin markets are far more efficient today than they were three years ago. In 2017, the price that Bitcoin traded at varied considerably depending on the exchange, a sign that markets were disjointed and relatively inefficient. In 2020, information asymmetries have lessened and markets are increasingly integrated, which indicates that traders are overall more informed and rational.
Ethereum (ETH) breaks $1’000
On the tail of Bitcoin’s bull run, ETH has skyrocketed above $1,000, jumping more than $300 in 24 hours to price levels not seen since 2017 and just a couple hundred short of its previous All Time High. Ethereum’s renewed momentum began this summer during DeFi-mania and picked up gradually following the launch of ETH 2.0, CME’s listing of ETH futures, and Bitcoin’s rally, which has rippled over to other cryptocurrency markets. Ultimately, ETH ended the year as one of the best performing assets up more than 450%.
Bitcoin-Dollar volume is less than 2017 peak
Although ATH’s were broken numerous times over the past month, BTC-USD volumes have not topped 2017 highs. The seeming absence of bubble-like euphoria and the dispersion of trading volume across different Bitcoin pairs, in particular BTC-USDT, are likely explanations for the relative drop in USD volume. Additionally, institutions are largely credited with initiating this bull run, and they tend to purchase Bitcoin over-the-counter, which would not be reflected in exchange volumes.
Bid depth has declined since September
As price volatility climbs, the total quantity of bid orders on Bitcoin-Dollar order books has noticeably fallen over the past few months. We can observe a clear trend line showing a downturn in orders placed within 10% of the mid price. Ask depth does not display a similar trend.
Bitcoin’s inverse correlation with the U.S. Dollar is growing stronger
As the dollar depreciated to multi-year lows, Bitcoin soared to record highs, resulting in an inverse correlation between the government-backed fiat and decentralized digital asset. A significant portion of Bitcoin price discovery occurs with U.S. dollar trading pairs, so a falling dollar likely has a non-negligible impact on price. Ultimately, this trend bolsters Bitcoin’s value proposition as a hedge against economic uncertainty, which has been tested thoroughly this year in the midst of the pandemic.