The rally in BitCoin over the past few days caught many by surprise and has sparked much discussion about the move. From our perspective, the underlying data that we capture and display provides some insights, particularly when we analyze some of the differences between exchanges.
Using CoinRoutes software to display the history of the Consolidated Best Bid & Offer (CBBO), the first thing we can see is that the market for BitCoin has been crossed more significantly than normal during the move. This can be seen by the large gap between the blue line (the Consolidated Best BID (CBB)) and the orange line (the Consolidated Best OFFER (CBO)) in the chart above. While it is “normal” for the market in BitCoin to be crossed, the magnitude that the best BID was above the lowest OFFER (of over 1.3% during the run from 8200 to 9600) was far in excess of that norm. My personal best guess is that this is representative of either price insensitive buying or buyers who only look at one exchange when trading. This is most likely from new money being invested into BitCoin funds, at the same time that natural sellers pulled back. Many might say that such price action looks similar to a short squeeze, but there is very limited capability for shorting BitCoin at the moment.
The other piece of evidence noted by a quick analysis using the CoinRoutes software is that, during this sharp move higher, GDAX was the dominant exchange at the best bid, with 64.3% of the consolidated best bids for the period and higher during the run itself. We also see that there was a more competitive situation for the lowest offer, and that GDAX’s offer was not at the best offer during the period. This was a large change from the previous week where the market was also crossed (albeit for a much smaller amount) and GDAX represented the best bid just under 35% of the time (and also saw its best offer spend some time at the CBO).
This seems to corroborate my hypothesis that new, price insensitive buyers entered the market. My reasoning is that GDAX, due to the financial stability of its parent company Coinbase, and heavy investment in data security, is a venue of choice for both custody and trading for many of the emerging funds in the U.S. It also seems to be the venue of choice for many U.S. high net worth investors who could also have been a major contributor to this rally. Unfortunately, it appears that many of these funds or investors are either unaware of the prices available on other exchanges, or unable to access them.
Finally, while it is too soon to tell if it is an end to the trend, the gap between the CoinRoutes CBB and CBO has narrowed during the past few hours, although GDAX continues to dominate the bid side of the market.
While it is not definitive, the ability to visualize and analyze the underlying data that makes up the CBBO can provide traders with information that is not available without it. At a minimum, it is important to have access to all this information when trading.
(For any readers of this blog interested in being notified when this software becomes available for institutional or individual use, please use the “Contact Us” form on the main page of coinroutes.com.)