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The new year saw ups and downs in the crypto market

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New Year, New Regulation, New Era of Financial Populism

Original title: "Encryption Market Ups and Downs at the Beginning of the Year"

Original source: Darling Think Tank

1. In January, the price of Ethereum broke through the record high of 1,400 US dollars, ETH exchange related trading products and The variety of derivatives continues to grow.

2. Since September, the total volume of BTC-USD transactions has almost doubled relative to the total volume of BTC-USDT transactions.

3. BTC-USDT, ETH-USDT daily trading volume peak occurs between 9:00 am and 11:00 am EST.

4. On January 11, the price of Bitcoin fell by more than $9,000 in one day, setting the highest single-day transaction volume in Bitcoin history.

5. Over the past 10 months, ETH-USD slippage has been steadily decreasing.

January 2021 Monthly Overview

New year, new regulation, new era of financial populism. January is perhaps one of the most influential months in the history of financial markets. The retail-versus-Wall Street battle that took place in January was commonplace for those active in the crypto industry. Because the encrypted asset market has been influenced by the trend of open finance. But the movement calls into question fundamental problems with the traditional financial model.

Throughout January, the daily price fluctuation of Bitcoin broke through a new peak and caused a double-digit plunge in the price of Bitcoin, which also made The market ushered in two days of the highest daily trading volume for Bitcoin. And due to the excessive transaction volume, the infrastructure problems of several of the largest exchanges in the world have been caused. The price of Ethereum broke through a record high of $1,400 in January, and the types of trading products and derivatives related to ETH exchanges continued to increase, which indicated that professional investors began to pay close attention to encrypted assets. In the past year, the liquidity of ETH has increased significantly, which shows that the ETH market is developing in a more efficient and stable direction.

Social media drives the market

For those active in the crypto market That said, the market push generated by the power of social media, often dominated by fragmented groups of traders on Internet forums, is nothing new. Elon Musk changed his Twitter bio to Bitcoin as the dust settled on the GameStop short sale, sparking an immediate price increase of almost 20%. The volatility caused bitcoin's trading volume to increase twentyfold in a minute and caused several of the world's largest crypto asset exchanges to temporarily go offline. That volatility is extreme, even by bitcoin’s trading norm. At the same time, this incident also highlights the common problems existing in current encrypted exchanges. It is necessary for exchanges to ensure the scalability of their core infrastructure so that they can respond quickly when market surprises occur.

Figure 1: Jan. 29 BTC volume

The internet forum that fueled GameStop's meteoric rise believes it's time for XRP (a project being investigated by the SEC and removed from most major transactions) delisted cryptoasset) and Dogecoin (a meme-inspired cryptoasset). Since the call was made on the forum, the prices of these two assets have soared, and no one can stop it. Meme has existed in the encryption field for a long time, and will continue to be active in the encryption market for some time to come.

Picture 2: Comparison of hourly price changes of XRP and Dogecoin

The change in trading pattern indicates the official entry of institutions

Volume data are a powerful tool for studying market trends and can be used to derive several indicators of institutional behavior. In addition, data on the chain, investment data of exchange products and encrypted funds, and information provided by the media all confirm that institutions have entered the market from all levels. Trading volume data is just one of the tools used to underpin the fact that institutions are entering the crypto market.

BTC-USD trading volume has almost doubled relative to BTC-USDT trading volume since September, indicating trading patterns in the market A major shift is taking place. This shift may have been triggered by traders looking to cash in on fiat currencies as BTC prices reached all-time highs. However, it also shows that the new influx of traders (perhaps institutional traders) tends to trade in fiat currencies rather than stable tokens.

Figure 3: USD vs Tether : The proportion of total BTC

As can be seen from Figure 4, since September, the average transaction size of exchanges such as LMAX Digital and Bitstamp has increased significantly, which may It was also triggered by the entry of institutional traders into the crypto market. This shift could indicate either an increase in the number of high-volume traders compared to low-volume traders, or a small number of high-volume traders starting to execute larger orders. Of course, the increase in the average transaction size of BTC-USD may also be related to the historical high of BTC price (BTC sell orders are often larger than buy orders, which also increases the average transaction size).

Figure 4: Average transaction size : BTC-USD

BTC and ETH trading volume peaked during North American trading hours

< p>While BTC-USD and ETH-USD trading volumes are mostly concentrated on US exchanges like Coinbase, BTC-USDT and ETH-USDT trading volumes are mostly concentrated on Asian exchanges like Binance, Okex, and Huobi. But surprisingly, volume trends for BTC-USD and BTC-USDT, as well as ETH-USD and ETH-USDT, are very similar, with volume peaks for all trading pairs occurring within the overlap between European and North American trading hours. Compared with USD’s trading volume, USDT’s daily trading volume is more stable, and the peak occurs between 9:00 am and 11:00 am EST. This suggests that the influence of the Asian market is actually not as great as previously estimated.

Figure 5: Average hourly trading volume

(UTC time 0:00-23:00)

Volume soars amid declining market depth

On January 11, the price of Bitcoin fell by more than $9,000 in one day, a record high The highest single-day transaction volume in the history of Bitcoin. The number of transactions on this trade was huge as the data indicated a long-term downward trend in order book depth for BTC-USD. The average bid and ask price of the BTC-USD order book has decreased over the past few months. This may also be one of the reasons why the price of Bitcoin has repeatedly hit new highs and then fallen sharply. The smaller the number of buys or sells on the BTC-USD order book, the more vulnerable the asset price is to large market orders.

Picture 6: BTC-USD trading volume

Figure Seven: BTC-USD Market Depth

The liquidity of Ethereum is improving

Due to the extreme volatility of the ETH market, the bid-ask spread of ETH-USD has widened recently, but looking at the trend of the whole year, the average bid-ask spread of ETH-USD transactions is still smaller than that of a year ago. Bid-ask spreads are an indicator of overall market liquidity: narrower spreads indicate deeper market depth, and large orders are less likely to affect an asset's price. Spreads are set by market makers, and during times of price volatility, they will widen the spread to account for increased risk. The narrowing of the spread shows that the ETH market is becoming more robust and efficient.

Figure 8: ETH-USD bid-ask spread

Despite the recent volatility in the ETH market, since March, the slippage of the $100,000 simulated sell order for ETH-USD has decreased significantly reduced. Slippage on ETH-USD is relatively high even before large market moves. However, ETH-USD slippage has been steadily decreasing over the past 10 months, suggesting that the Ethereum market is more liquid and has more active market-making activity than last year.

Figure 9: $100,000 Price slide for sell orders: ETH-USD

Refocus on DeFI

When When Robinhood shut down volatile stock trading, many in the crypto space saw this as a huge opportunity for a decentralized financial system that doesn't rely on intermediaries such as brokers, exchanges or banks for centralized transactions . It is undeniable that DeFi is now a huge sandbox, with new experiments popping up every week. Hidden beneath the hacker’s activity is a new type of financial infrastructure that is completely disintermediated — no centralization means no one can stop transactions. In January, trading volume on DEXs (decentralized exchanges) doubled, and most top DeFi tokens saw triple-digit gains.

Picture 10: Growth of DeFi Token

In January of this year, Ethereum set multiple historical price highs, even overshadowing Bitcoin. For years, bitcoin was the only crypto asset considered by traditional investors, but that has all changed in the past year. CME will soon launch Ethereum options, Galaxy Digital announced a new Ethereum fund for institutional investors, and Grayscale just filed several DeFi-related trusts. The more well-regulated ETH investment vehicles are, the stronger and more efficient the ETH market will be.

Picture 11 : BTC vs. ETH increase

The price trend in the day is getting more and more extreme

The record-breaking rally in Bitcoin’s price has led to the longest-running frequency of extreme intraday price swings ever recorded. Traditional measures of price volatility do not fully capture extremes because they are calculated from daily returns. Almost every day since mid-December, bitcoin has seen price swings of at least one hour plus or minus 2 percent, a rare occurrence over the past five months. Generally speaking, Bitcoin’s positive price action is less extreme than its negative price action.