According to a report by over-the-counter market maker B2C2, during the collapse of cryptocurrency markets in March, the price gap between supply and demand for BTC on the main exchanges widened significantly.
The supply and demand price corridor is a classic indicator of market liquidity. It measures the gap between the highest price that the buyer is willing to pay and the lowest price that the seller is willing to accept. The greater the difference between these indicators, the less profitable it is to conduct transactions “on the market”. On the other hand, those who manage to buy cheaper and sell more than the average price, get a large profit.
The problematic period in liquidity began on March 12, when prices fell sharply in both traditional and cryptocurrency markets. Soon after, bitcoin fell below $4,000, reaching a twelve-month low.
The supply and demand price range (spread) is measured in base points (for BTC, usually with an accuracy of 1 cent) or hundredths of a percentage point (for bonds and similar instruments) and is usually a single digit number. But during the March 12-13 market downturn, the gap for a buy or sell order of 25 BTC according to B2C 2 data increased from 200 to more than 700 basis points on three major exchanges.
The report does not mention the names of the platforms, but says that they have large volumes and serve institutional investors. On one of the exchanges mentioned in the report, the spread even went out of the range of the presented chart.
Graph of the supply and demand price corridor for 25 BTC. Source: B2C2
Cryptocurrency exchanges, even the largest, have sluggishly traded order books, which can always lead to spikes in the supply and demand price gap during periods of volatility.
“It’s still a tiny system with low liquidity,” said Swedish OTC trader Henrik Kugelberg.
B2c2 platforms aggregate order books from several exchanges. Because of this, B2C2 usually has a lower price gap, as traders come to them for large trades above 5 BTC. Due to the General low liquidity in the cryptocurrency markets, B2C2 provides traders with an electronic connection service to various exchanges and other liquidity providers.
“Such trading is accompanied by efficient aggregation of liquidity over a single connection and without the need to maintain a balance on multiple exchanges,” said B2C2 trader and report author Chris Dick.