Impact of Bitcoin Price Dump on Exchange Liquidity


Price Dump

Yesterday, shortly before 9:50am CST, the price of Bitcoin dropped $981 (9.7%) in several minutes, before stabilizing down about 6%.

Market Liquidity

Liquidity refers to the relationship between traded size and price impact. If you can buy or sell a large amount of an asset like bitcoin at the prevailing market price, then the market is characterized as highly liquid. If only small amounts are available to purchase, with larger amounts only available at much higher prices, then the market is characterized as illiquid. A barometer of market liquidity is often the bid-ask spread. Rather than looking only at the top of the book prices, you could, for example, take the spread between the average price one could buy 100 BTC (~$1 million) and the average price at which one could sell. This is what we've done in this study.

Combined Order Book

In order to get a more accurate view of the market, we've combined order books from five leading exchanges: Coinbase, Kraken, Bitstamp, Gemini, and Bittrex. Real-time and historical order book information can be viewed on CoveTrader:

Average Bid Price vs. Average Ask Price for 100 Bitcoin

Below are snapshots from the historical order book at each minute marker. Visually, you can see that the difference between the bids and asks is very small before the price drop, then wide and volatile both during and after the price drop.

Average Bid-Ask Spread for 100 Bitcoin

Below we can see the difference between the bid and ask in percentage terms and should note two forces at work:

1. Increase in bid-ask spread: The average spread before the price drop was 0.02%, while the average price after was 0.56%, a fairly massive increase.

2. Volatility in bid-ask spread: As the price drops and then attempts to stabilize, the prices in exchange order books become erratic and in this case there were inter-exchange arbitrage opportunities. For example, at 9:49, there were several large offers on Coinbase below $9400, while other exchanges were still bid higher. The market quickly snapped back up and stabilized.


  1. Trading during and immediately after big price moves can be more expensive. A trader taking liquidity (using market order or marketable limit orders) should be prepared to pay an extra 0.50% or more during these times.
  2. If you have the right tools, there might be opportunities from price deviations during or immediately after big price moves. Exchanges can often deviate substantially in price during periods of high volatility. We've written before about these deviations.


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