(the following is not investment advice or recommendations to buy or sell securities, commodities, or investments of any kind. It is meant to be instructive on market microstructure only)
The recent price behavior of BitCoin vs US Dollars is quite instructive on the importance of understanding market micro-structure. Over the past week, as it has traded in a relatively narrow range, using the CoinRoutes software, we can make several observations based on the graphic above:
- Unlike previous periods, until the last 24 hours, the market has been more “organized” than it had been previously, with the Consolidated Best Bid not exceeding the Best Offer by a large margin.
- Unlike the period of time where BitCoin moved aggressively higher, where GDAX (the exchange owned by Coinbase) was the overwhelming majority of the best BID, during the last week, GDAX was at the best OFFER the majority of the time.
- The markets overall volatility has decreased, and has stayed within a defined trading range.
While this is not necessarily the case, it certainly has looked like a textbook example of what technicians might call “distribution.” In this case, it seems like BitCoin buyers are working their way through the selling of the “late buyers” that purchased the asset on GDAX. This seems even more apparent from the last 24 hours, where the market has become more crossed. The following graphic is a zoomed-in view of the last 24 hours:
As you can see, the best offer, which has been almost exclusively from GDAX, has been consistently well below the consolidated best bid. It is hard to know if this will continue, but market participants should stay on top of this, and watch for signs that the “distribution” phase is ending, or that the offers from the GDAX cohort become more aggressive, signalling a downturn.
As always, this is presented to inform, and not as advice to buy or sell…