100x Group the parent company of cryptocurrency exchange BitMEX has today announced a $40,000 one-year grant to Bitcoin developer Calvin Kim.
Kims area of expertise and development was in the area of Utreexo. Within the blog post 100x describe Kim as being instrumental in the development of the first demonstration release of Utreexo.
What is Utreexo?
On the Bitcoin network user balances in wallets are stored as a collection of ‘unspent transaction outputs’ or an acronym you might be familiar with ‘UTXOs’. In terms of size the full Bitcoin blockchain is around 300GB with the UTXO set being 4GB.
Nodes on the network can shed some of the blockchain data. However, with the UTXO’s nodes are required to keep the full set on hand to validate transactions and spend coins. This could be a major bottleneck for Bitcoin in the future.
Utreexo will allow these UTXO sets to be compressed into much smaller sizes with no loss of security. It works with some presumably complex cryptography but the gist of it is that instead of the network being responsible for keeping track of UTXO’s the burden is put on the wallet owner instead.
With Utreexo the holder of funds maintains a proof that the funds exist, and when they wish to spend those funds they provide said proof. This can drastically reduce the size of unspent transactions.
In response to the grant, Tadge Dryja from MIT’s Digitical Currency Initiative, credited with inventing Utreexo, said the following to 100x:
It’s great that 100x is not only funding Bitcoin research and development, but also providing support for newcomers to the Bitcoin open source ecosystem. We at the DCI are looking forward to working with Calvin on improving Bitcoin’s scalability & security, and making Bitcoin the best digital currency we can
BitMEX founded in 2014 and most notably known for its cryptocurrency derivatives products has today announced the launch of BitMEX Corporate.
BitMEX Corporate is, as the name implies, BitMEX’s attempt at on boarding large corporate clients going into the future. These corporate clients can range to large financial institutions, to hedge funds, and trading firms.
In an email sent to users BitMEX outlines the benefits to corporate clients of signing up to the scheme:
Corporate legal structure – Ensuring that accounts are property of the business rather than any individual
Improved Service – Corporate clients will be assigned with a dedicated relationship manager.
Improved Security – Clients will be given additional options in terms of account security.
Increased rate limits on their account
Incentive Programmes – Access to products incentive schemes, and market maker programs.
BitMEX’s attempt at increasing their corporate client base is a further signal of the increasing trend of both the increasing institutional presence in the cryptocurrency (typically taking the form of financial institutions wanting to trade cryptocurrency derivatives) and the push by cryptocurrency firms to onboard these corporate clients.
It is already known that large trading firms such as Alameda Research and Circle as well as a host of others use the platform. However, this is BitMEX’s attempt at making corporate onboarding easier.
Other popular exchanges such as Binance, FTX, and OKex have similar schemes for business clients.
On the 13th of March Bitcoin had one of the most gut wrenching declines in its history. Prices falling from 8000$ to just under 4000$. Prices have since made a recovery but on first reflection we still see that the event has caused some aftershocks.
One such aftershock is the decline in active Bitcoin deposits on a number of top exchanges. Via data provided by TokenAnalyst we can look at Binance‘s active deposits. Here we see that since the crash actives deposits have fallen 7% from 261,000BTC to 244,000BTC.
However it is important to note that this just brings deposits back to levels seen at the start of the year.
We see a similar trend on Huobi with deposits falling 6.5% from 390,000 to 365,000BTC
BitMEX which is typically by volume the largest derivatives exchange in crypto, was by far the most effected. With deposits falling over 24% from 316,000BTC to 240,000BTC.
But what is the explanation for these large movements in capital? Well its impossible to say for certain what has caused these large outflows however we can speculate on certain theories.
One rather simplistic but probable theory is that its simply the everyday movement of Bitcoin. With no collective ulterior motive. This is at least partially true. Both institutional and retail traders are constantly moving Bitcoin with no seeming economic motive.
Many have pointed out that correlation between Bitcoin and the S&P500 has been high since the crash. With the S&P500 having some of its worst days in history around the time of Bitcoins crash. Accompanying this were global macroeconomic concerns. These in combination may be causing people to withdraw their Bitcoin from exchanges in favor of less speculative assets or assets which are more liquid. This is also probable explanation.
What these don’t explain however is why BitMEX’s deposits were so much more effected than the other mentioned exchanges. This may be due to growing concerns surrounding BitMEX.
One such concern is an unconfirmed rumor that BitMEX will be enforcing more stringent KYC measures which many cryptocurrency traders are naturally averse to.
Another is the loss of faith in BitMEX as a platform. At the bottom of crash when price kept falling with no bottom in site BitMEX went offline for 15 minutes. When it returned price sharply increased. Many traders called shenanigans after the event but BitMEX responded by simply saying they were DDoSed.
Sam Bankman-Fried CEO of another large exchange FTX and quantitative trading firm Alameda Research went as far as to say that BitMEX had to go offline to prevent Bitcoin going to zero on the platform.
When looking at the data no exchange seems to have absorbed any of the withdrawn Bitcoin from BitMEX so it will be interesting to see how the crypto exchange landscape develops over the next few months.
As you may know there are a variety of strategy’s in trading. You may have heard of fundamental analysis where traders take all available information about a given market and derive a value based assessment about whether it is a buy or sell. There is also technical analysis which identifies trading opportunities in price trends and patterns seen on charts. However, one which you may not of heard is order flow analysis. Order flow analysis is a method that attempts to anticipate price movements based on the current orders that are visible in the market. It is this type of trading that TensorCharts is trying to make more prominent in the cryptocurrency market.
There are hundreds of different strategies within both technical and fundamental analysis based strategies. Order flow analysis is no different. In this article we will give a brief run down of some simpler strategies so you can get a feel for how order flow trading works. It will be up to you to manipulate these strategies for your needs and hopefully make profitable trades as a result.
Reading the Tape
This strategy is order flow trading in its simplest form. It is essentially reading the order book and making trades based off of this. For example if we take the below orderbook from BitMEX on TensorCharts. We see that there are large sellers on the book from 7330 to 7350 and so we may choose to sell.
This is a perfectly reasonable strategy and many people use it successfully. However there are a number of flaws with it, One issue is order spoofing. Order spoofing is the act of placing fake buys or sells on the market in order to spook the market and drive it in a desired direction. This can cause issues in our strategy as we may take trades based on large orders that may be removed. The infamous S&P500 flash crash of 2010 is an extreme example of what order spoofing can do to a market. Another issue is that most exchanges allow for traders to hide their orders from the order book so again we may miss crucial pieces of data.
Technical Analysis Confluence
This strategy takes elements from both technical analysis and order flow analysis. In the below image our red box shows our white resistance line and our yellow block from TensorCharts which represents a large resting sell order. Price went up above our resistance line and the large resting sell orders before continuing downwards again. The use of order flow analysis and technical analysis can be a powerful combination to first identify a support or resistance line and then try to identify whether it will hold based on orders in the market.
This strategy is perhaps the most exciting of our 3 strategies, yet, the most likely to induce heart attacks. It involves fast paced trading on low time frames (primarily on one minute candles) you can use what ever leverage you want but if you want to make it worth your time you are most likely going to have to use higher leverage due to low time frame nature of these trades.
This strategy relies on data from BitMEX so it is recommended you create an account there. To get started on this strategy you’ll want to navigate to the ‘BitMEX stats’ tab on TensorCharts. Highlighted Below.
You will be presented with an interface like the one below. You again want to focus on our beautiful red boxes. The box on top is just your standard Bitcoin price chart, the box on the bottom represents liquidations on BitMEX and is where our strategy lies. You can read the BitMEX documentation to fully understand how liquidations work. But Essentially liquidations create large market cascades which typically reverse.
We first want to identify these large liquidations typically I look for liquidations above at least 5 million and then buy/sell them. In the below chart notice how large liquidations typically reversed.
This strategy requires very stringent risk management as things can go badly very quickly. As mentioned this strategy is very fast and heart palpitations are probable. My average holding time for these types of trades is less than 45 mins you want to take profits relatively quickly as the market can always turn sharply against you. I use this strategy in conjunction with reading the order book to recognize if selling or buying is going to continue or if there is large orders coming in. Again I want to reiterate. If you want to use this strategy make sure you’re using stop losses and take profits quickly.
These three strategies only scratch the surface of order flow trading. Don’t be afraid to dig in and do your own research on different strategies or come up with your own.
TensorCharts has support for a number of different exchanges. Such as Binance, BitMEX, Bitfinex, and others. It even has support for some traditional markets such as CME currency, agriculture, energy, and metal futures. One slight problem I have is that even though TensorCharts has support for a number of crypto exchanges, there are only a few pairs listed on each exchange. For example, BitMEX only has XBTUSD and ETHUSD and is missing all of its altcoin futures contracts. Binance also lacks altcoin pairs. I don’t typically trade altcoins but if you do this is something you may want to keep in mind.
As the cryptocurrency market has grown over the past few years profitable trading has got increasingly more difficult. If you want to be a successful trader you really need a strong edge and a large trading tool belt. TensorCharts is one of the essentials in mine. Whether you’re brand new to trading or have been around the block everyone can find value in TensorCharts and orderflow analysis in general.