Category: Market

It was another “exciting” month in the cryptocurrency space. Bitcoin has taken a tumble from 12000$ to 10000$ bringing the market as a whole with it with many altcoins down significantly as a result.

It was also another big month for cryptocurrency trading volumes as revealed by CryptoCompares monthly exchange report. The report highlighted many trends within the crypto industry

Spot Volumes are up Massively

highlighted in the report is the news that spot volumes for top-tier crypto exchanges are up 58.3%. Bringing the total to $529 billion in volume across the month of August.

Volume on lower tier exchanges also increased 30.2% to $291 billion. This makes the volume split between higher and lower tier exchanges 64:36 in favour of top tier exchanges. Among the exchanges with the biggest increase in spot volume was Binance which was up 83%.

Derivatives Volume Surge

Volume for derivatives exchanges also increased significantly. Total derivatives volume increased for another consecutive month up 53.6% to $711.1 billion.

This means that derivatives trading continues to hover around 40% of total cryptocurrency trading. Binance again took the cake for the largest individual increase in exchange volume. Their derivatives volume up 74%.

Options Trading Holds Steady

The previous report from CryptoCompare documented the record breaking month for cryptocurrency options trading in the month of July. In the month of August these volumes held steady with down slightly by 0.6% to $4.05 billion.

July was another big month for cryptocurrency trading. Bitcoin rose from its previous months slumber breaking sharply above 10000$ and DeFi had another month of craziness.

It was also a big month for cryptocurrency exchanges as revealed by CryptoCompare’s monthly exchange review. One of the most noteworthy events highlighted is the continued trend of increase in derivatives trading as a percentage of overall cryptocurrency trading.

In June of 2020 derivatives trading represented 38% of overall trading. In July that was 41%. This percentage increase came as overall spot volumes fell 0.5% to just shy of $640 billion while overall derivatives volumes rose 13.2% to $445 billion.

On the 27th of July derivatives also made a new all time high for trading in a day with $46.91 billion being traded in 24 hours. The top 4 exchanges Huobi, Binance, OKEx, and BitMEX represented 90% of this days trading volume.

Some other noteworthy points made in CryptoCompare’s report are the new all time high in options trading on Deribit which recorded new highs in terms of Bitcoin options trading within a single day and over the month.

The new daily trading record tripled the previous one coming in at a new high of $585 million while the new monthly high was set at $4.07 billion surpassing the previous high of $3.06 billion.

What was also interestingly outlined in the report is that in the same time period options trading on the CME dropped 70.3%.

Bitcoin has had its most poorly performing week since 2018. At the time of writing it has fallen just over 2000$ since the weekly candle opened. However, price only tells us half the story.

People have been quick to put blame for price movements on the launch of the much anticipated Bakkt futures market, or potential drops in hashrate. But now courtesy of the TokenAnalyst we can get valuable data on how large players in the market are moving capital, and in doing so gain insight into their motivations.

When taking a look at the data we will primarily be focusing on both Binance and BitMEX as these were the two exchanges where the most activity took place.

BitMEX

When taking a look at the data for BitMEX we see the large dip in price on the price chart (Top graph) which took us from 9500 to 8500 in one hour. In the following 3 hours after this fall in price on the net in/out flow chart (Bottom Graph) we see just under 8000 Bitcoin deposited.

Binance

When we inspect the data for Binance we see strong similarities. A dump followed by large amounts of deposits in the proceeding hours. Not quite as much Bitcoin was deposited to Binance as Bitmex. Deposits coming in at 5765 Bitcoin. Nonetheless a very significant amount of Bitcoin.

However, it is important to note that unlike BitMEX, Binance does not purely handle Bitcoin transactions but a multitude of currencies. An important one to Bitcoin is the stable coin Tether. Based on the chart above we can see a huge net outflow of Tether to the value of 35 Million Dollars. This contrasts heavily with the net inflow of Bitcoin to exchanges. We looked further into Tether withdrawal data and we saw similar trends across a number of exchanges. But now we have a dilemma, where is the Tether being sent? That question is currently unclear but whichever market players are harvesting these Tethers they have not deposited them on any other exchange except one. Poloniex, where 10 million were deposited. To put that in perspective Poloniex only does 10 million dollars in total volume a day.

Conclusion

To answer the question we gave at the start of the article. What is the motivation behind these large flows of capital? It is truly hard to know the full story, but one possible suggestion are large quantitative firms who engage in arbitrage where as they make money in price differences across exchanges. Read our article on Alameda Research to get more of an insight into how quantitative trading in crypto works. Another is miners in China whose energy costs have risen selling their Bitcoin for Tether. Nonetheless it is very interesting to see how blockchain is giving us a perspective into how financial markets work beyond just movements of price.