Sigh… My guess that the short term run in BitCoin was over in yesterday’s blog doesn’t look so good today. For a few hours, as shown in the Consolidated Best Bid and Offer graph above, the enormous gap where the best offer was below the best bid narrowed. This did not last, as, once again, the bid on GDAX (predominantly) has been well above the best offer (which has been Kraken most of the past 2 days). Using the CoinRoutes software last night to peruse the markets, I saw this and checked out the specifics using our unified order book.
I wanted to see how “real” the potential arbitrage was, so I chose a filter of 10 BitCoin. (The CoinRoutes system has multiple filter levels for viewing the CBBO or the order book). When I looked last night, there were bids on GDAX over 9650 and offers on Kraken for 9550, but I did not take a picture. (Instead, I logged into both firms websites to see if our software was correct and was able to see the same bids and offers)
Looking at this again this morning, we see that the situation is similar, although the magnitude of the crossed market is lower:
I do not wish to speculate on how this situation will play out, but, apart from the price movement in BitCoin, there are a couple of clear takeaways. First, to trade optimally, funds need access to this information, whether provided by CoinRoutes, or if they gather it themselves. The knowledge of where products are trading and at what price can better inform trading and also help investors determine where to have accounts set up for trading. (NOTE — while it takes time, it is not required that investors trade and custody their crypto-assets at the same firm. All of the key exchanges allow for inbound and outbound transfers to facilitate such separation.)
The second takeaway revisits the point of an earlier blog: This data show how easy it will be to manipulate the “index” chosen by the CME in their proposed futures product. When two of the markets in their “index” can routinely become crossed by over 1%, that creates a lot of “noise” in the data for manipulators to hide in. Even if the CME plans to conduct surveillance on those markets, such uncoordinated price action will make it extremely difficult.
As an aside, it is also fascinating to note that a similar extreme crossed marked has developed in Ethereum. While ETH has had a substantial move also, the gap between the best bid on GDAX and the best offer on Kraken is even higher in percentage terms. Once again, it is unclear what this means, and I do not wish to speculate, but traders should be aware…
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