Bitcoin Exchanges Trading at Bad Prices

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Bitcoin volatility

Bitcoin, like many other financial assets, often has volatile moves. Trading occurs on dozens of different exchanges and prices mostly stay in line. But unlike US equities there is no explicit linkage between the exchanges. Therefore, prices between exchanges can deviate. This most often happens during price volatility as exchange order books thin out and trading volumes increase.

BTC price action

Around 9:30pm CST, on Thursday May 14th, bitcoin had some pretty typical price action. The price dropped $100 (9750 to 9650) over about 30 minutes. Then during a 3 minute period (9:31-9:33pm), the price dropped $400 before recovering $300.

Trades during the price drop

Here we look at the price of BTC-USD during the one and a half minute period from 21:31:30 to 21:33:00 based on trades across five large exchanges. Note that we filtered for trades of >$1000 so as to only consider significant volume trades.

Bad trades?

When we look at this, we can see several periods where one of the exchanges had trading occurring at prices quite below where other exchanges were trading. Four of these periods are noted below.

Coinbase trades

  • Time: 21:32:01.4
  • Price: Coinbase Pro executes BTC trades down to $9482.38
  • Amount: 150 BTC traded
  • While trades occurred at up to $67 below the prevailing market price, several seconds later the market moved down so it would be unfair to call these Coinbase trades "bad". These trades turned out to be leading indicators.

Kraken trades

  • Time: 21:32:05.9 - 21:32:08.1
  • Price: Kraken executes BTC trades down to $9350
  • Loss: Traders lose $10,000 by selling up to $100 lower than prevailing market prices
  • Amount: 200 BTC traded at prices < 9440
  • The worst of these trades can be seen below:

Bitstamp trades

  • Time: 21:32:08.7 - 21:32:16.0
  • Price: Bitstamp executes BTC trades down to $9385.87
  • Loss: Traders lose $3,200 by selling up to $60 lower than prevailing market prices
  • Amount: 90 BTC traded at prices <= 9440
  • The worst of these trades can be seen below:

Bittrex trades

  • Time: 21:32:32.1 - 21:32:34.1
  • Price: Bittrex executes BTC trades down to $9380
  • Loss: Traders lose $500 by selling up to $70 lower than prevailing market prices
  • Amount: 11 BTC traded at prices <= 9440. Only small volume was trading on Bittrex.

Conclusion

From this analysis, a few conclusions can be made:

  • Exchange liquidity can decrease during volatile periods, so trades need to be careful when executing larger size trades.
  • Liquidity can vary between exchanges and the market is not just any single exchange.
  • Traders should connect to multiple exchanges and consider a tool like CoveTrader in order to gain greater visibility across exchanges and not execute at bad prices.

Who knows where the the price of Bitcoin will go in the future, there are pros and cons of investing, but one thing we know for sure which is that selling for $100 less than available elsewhere is a guaranteed loser! All of the analysis above was done using CoveTrader historical analysis tools.

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