Category: Analysis

There are several tools and technical indicators to analyze price movements in charts. Whether it may be candlestick formations, the relative strength index, moving averages or other approaches, traders are constantly searching for the best method to predict future price movements. However, most of the patterns shown by these indicators are only said to have certain impacts on future price movements without having been statistically proven for cryptocurrencies yet. Therefore, I want to have an in-depth look at a certain candlestick formation in this article and examine, whether its presumed impact can be proven by numbers.

The candlestick formation “Hammer” is one of the most widely known candlestick patterns. It is a candlestick with a relatively small body that is accompanied by a long wick to the downside and a short to non-existent wick to the upside. The hammer visualizes an interval in a chart, in which lots of selling pushed the price down initially, before the bulls pushed the price back up, thus positioning the closing price relatively near to the opening price.

Two types of the hammer candle allegedly have a predictive impact on prices. One is a hammer candle that is positioned in a chart after a downtrend. It is assumed to indicate the end of a downtrend and is widely recognized as a bullish reversal pattern. The second hammer pattern is called “hanging man”, which is a hammer that appears after an uptrend and is supposed to be a bearish reversal pattern.

While the human eye might spot hammer candles very easily on a chart, I had to conduct a mathematical definition for the pattern in this analysis. This definition is determined by these three points:

1. The wick to the upside has to be smaller than 25% of the size of the candle body.
2. The wick to the downside has to be bigger than 200% of the size of the candle body.
3. The range from highest price to lowest price of the candle has to be bigger than 75% of the average range from highest to lowest price of the last 7 candles before in this chart. This rule was set in place to exclude very small hammer candles.

After defining the candle formation, we have to collect data to examine, whether the hammer candle acts as a reversal pattern in crypto. Therefore, I collected daily trading data of 19 major cryptocurrencies against USD (BTC, ETH, XRP, BCH, LTC, EOS, BNB, XMR, TRX, XLM, ADA, XTZ, LINK, NEO, ETC, DASH, IOTA, DOGE and BAT). I restricted the data sample to these 19 cryptos, since I only wanted to include assets that had decent trading volumes for a longer period and were listed on multiple exchanges. The result is a data sample with 27,729 records.

Of these 27,729 records, 402 fit the definition of a hammer/hanging man candle. That is around 1.45%, meaning we saw a hammer/hanging man candle on average every 69 days in a major crypto chart against USD. Comparing the closing price of the candle to daily closing prices after it occurred, we see an average increase of 0.1% after 1 day, 0.52% after 3 days and 2.13% after 7 days (Median: -0.54% after 1 day, -0.69% after 3 days, -0.89% after 7 days). Not surprisingly, the percentage values are not very conclusive, because they contain both a presumed bullish reversal and a presumed bearish reversal.

If we now want to separate hammer and hanging man candle from each other, it gets a little more complicated. A hammer candle only occurs, if there was a downtrend before the candle, while a hanging man only occurs, if there was an uptrend in the days prior to the candle. To define an uptrend/downtrend prior to the candle, we have to define a fixed timespan, in which the trend appeared. We also have to define a minimum value for the size of the trend to exclude tiny movements.

Accordingly, I started with 1-day movements. A hammer candle is identified, if the opening price of the day prior was higher than the hammer candle’s closing price by at least the size of the hammer’s candle body. Subsequently, a hanging man candle is identified, if the opening price of the day prior is lower than the hanging man’s candle by at least the size of the hanging man’s candle body. This 1-day algorithm found 183 hammer candles and 101 hanging man candles. The results are not very promising though: On average, the 1-day hammer candles led to a price increase of 0.47% compared to 1 day later, which barely confirms the bullish reversal pattern. Surprisingly, the 1-day hanging man pattern also led to a price increase, namely 1.35%, compared to the closing price 1 day later. This number shows the exact opposite effect to the bearish reversal that this pattern should have.

As a summary, the 1-day hammer/hanging man candles were not indicative of any trends. Therefore, I tested 3-day and 7-day movements that followed the same calculation than the 1-day movements but with 3-day and 7-day intervals. The algorithm identified 137 3-day hammer candles, 89 3-day hanging man candles, 78 7-day hammer candles and 63 7-day hanging man candles. The results are again different than expected: The 3-day hammer led to an average price decline of 2.03% while the 7-day hammer led to a price decline of 2.63%. The 3-day hanging man led to a price increase of 3.89%, while the 7-day hanging man led to a price increase of 1.9%. In both cases the results contradict the assumed effects.

Although the hammer/hanging man candle is said to be a trend reversal candlestick pattern, the underlying analysis of this article could not prove a correlation between the appearance of the pattern and a trend reversal. The hammer candles that should have signaled a bullish reversal actually led on average to a further price decline, while the hanging man candles, which should have proven a bearish reversal, actually led on average to a further price increase. Concluding from that, trades that were based on the assumed impact of hammer and hanging man candles did not necessarily turn out profitable in the considered data sample. However, the occurrence of both candle patterns has been rare, so that a bigger data sample could provide different results. Nonetheless, the two candle patterns could not be proven to be good predictive indicators for past cryptocurrency price movements, which in my personal opinion signals that they shouldn’t be given too much recognition in a chart prediction.

It was in early 2019, when Binance announced the creation of a native blockchain for their ecosystem. Their goal was to launch a platform that can handle very large loads and is perfectly suited to exchange assets. Today, Binance Chain has been live for nearly 1.5 years, with block 1 created in April 2019. It has witnessed rapid growth ever since with the onboarding of over 200 assets and 134 million transactions. In this article, I will present aggregated statistics on Binance chain transactions and assets.

Let’s look at the transaction growth first. In the second quarter of 2019, Binance Chain already had a total of 3.2 million transactions. This number went up significantly higher in Q3 2019, with a total of 20.7 million transactions. It also increased in Q4, when the total number of transactions rose by another 15% to a total of 23.7 million transactions. In 2020, transaction numbers stayed above the 20 million mark, with 27 million transaction in Q1, 26 million in Q2 and a high of 34 million transactions in Q3. As a comparison, the Ethereum network processed 103 million transactions in Q3 2020.

You might ask: How can a relatively new platform like Binance Chain with far less assets than Ethereum have a transaction number as high as 33% of Ethereum’s transactions in Q3 2020? Well, Binance Chain has a unique feature, which is on-chain orders. Every time an order is placed or canceled on Binance’s decentralized exchange, it is logged in a transaction on Binance’s blockchain. 96% of the transactions on Binance Chain were on-chain orders, which were either “place order” (56%) or “cancel order” (40%). Just around 4% of the total of 134.7 million transactions were “transfer” transactions.

Binance Coin is by far not the only asset on Binance Chain. Since its inception, an increasing number of assets have been issued on Binance Chain. From just 7 assets issued in April 2019, the mark of 100 assets issued was already broken in July 2019. Until the end of Q3 2020, there have been 222 assets issued on Binance Chain. However, some of them were burned completely afterwards and don’t appear in the explorer under the list of assets anymore. That’s possible due to Binance Chain’s native “burn” transaction type, which has already been used 146 times by different coins and tokens. Talking about listings on Binance DEX, this number expectedly correlates with the number of issued assets, even though it shows, that not all issued assets were listed on the DEX.

Let’s take a closer look at the assets on Binance Chain. To measure the adoption of an asset on Binance Chain, I like to consider the amount of holders of at least 100 BNB worth of this particular asset. It is a better approach than to consider the total amount of holders, since it ignores addresses with small amounts of a token. Also, assets on Binance chain are mostly traded against BNB, so measuring the value of holders in BNB makes more sense than measuring it in USD. At the end of Q3 2020, RUNE had the most addresses with a balance of above 100 BNB on Binance Chain with 1,315 addresses, while FTM was ranked second with 1,228 addresses. They were also the only tokens with more than 1,000 addresses above a 100 BNB balance. The third spot went to AVA with 319 addresses, while SHR was placed fourth with 268 addresses. The ranks 5 to 9 belonged to AWC, TWT, MTXLT, CRPT and RAVEN and were relatively close with around 200 addresses.

However, to not only measure adoption of assets but also usage of the chain, I analyzed the assets that caused the most transactions on Binance Chain as well. Please note that this list excludes the “cancel order” transaction type, since the explorer doesn’t attribute this transaction type to particular assets. With 9.3 million transactions and therefore accountable for 11% of all transactions on Binance Chain, BUSD has the number one spot in this category. It is followed by DEFI (6.12M transactions), AVA (5.81M), UND (3.46M), USDSB (3.12M), BTCB (2.52M) and IDRTB (2.47M). The other assets on Binance Chain combine for 61.2% of all transactions. Interesting side note: The top assets by transaction type differ mostly from the top assets by addresses with a balance over 100 BNB per asset.

As the native token of the chain, BNB is excluded from the list of transactions by asset, since it is involved in every transaction. I also had to exclude it from the list of addresses with a balance of over 100 BNB for a particular asset, since the Binance Chain Explorer doesn’t display more than 1,500 addresses in a rich list per asset. The 1,500th richest address on Binance Chain in terms of BNB currently holds 249 BNB.

This article discussed several statistics of Binance Chain. Since its launch in Q2 2019, Binance Chain has executed around 135 million transactions. 96% of those transactions are on-chain orders on Binance DEX, 4% are transfers of assets. Ever since the launch, the number of assets issued on Binance Chain increased to 222. 14 of those assets have over 100 addresses holding 100 BNB worth of that asset, while 13 assets combine for 50% of all transactions on Binance Chain. All in all, Binance Chain has been successfully onboarding assets and users from 2019 onwards and it will be exciting to watch its further growth in the coming years.

Order book depth is a fairly new metric to compare exchanges. It measures the volume of orders in exchanges’ order books and is intended to be a better comparison method of exchanges’ liquidity than a ranking by trading volume. I introduced order book depth in January 2019 and also analyzed in a follow-up article that there is no correlation between trading volume and order book depth. In this article, I want to apply this comparison method and present a ranking of exchanges based on a data snapshot I collected recently.

Fortunately, with Coingecko and Coinpaprika, two exchange ranking sites have stepped up this year and implemented order book depth as an additional measurement for liquidity. This empowers users to compare liquidity across exchanges in a much simpler way than to open the exchange and compare order books manually. Since Coingecko integrated the order book depth feature for 50 more exchanges than Coinpaprika, I chose to use Coingecko’s data for this analysis.

I made a snapshot of all exchanges’ order book depth as displayed on Coingecko on August 25, 2019. Of a total of 354 exchanges listed on Coingecko, 183 exchanges’ order books were integrated into Coingecko. Of these 183 exchanges, I excluded 4 exchanges because they are (partly or entirely) using the same order book than a larger exchange: Upbit has Bittrex’ order book integrated into their exchange and Bequant is using HitBTC’s order book. The order books of Huobi Korea, Huobi US and Huobi Global also looked similar. Therefore, I decided to exclude Upbit, Bequant, Huobi US and Huobi Korea from this analysis and only display the order book depth of Bittrex, HitBTC and Huobi Global. Furthermore, I decided to manually adjust HitBTC’s order book depth, since their reported liquidity was way higher than their balance in hot and cold wallets suggested. This leaves us with a dataset of 179 exchanges.

Coingecko offers data on order book depth of the buy side and sell side within a 2% range of the current price. So, “-2% depth” is the sum of all buy orders in USD not further away than 2% of the current price, while “+2% depth” is the sum of sell orders in USD not further away than 2% of the current price. Just to give you an example: With a market sell of BTC worth 4.3 million USD on Bitstamp at the time of the snapshot you would have hit all buy orders, that were not lower than 98% of the current price.

While Coingecko offers both buy orders and sell orders on integrated exchanges, I decided to only use buy orders for this analysis, since it seemed like most coins and tokens, especially the ones with smaller market caps, had way more orders on the sell side than on the buy side. To compare exchanges, I therefore used the sum of all buy orders on an exchange within a range of 2% of the current price in each trading pair.

Let’s start with the lowest liquidity exchanges. 22 exchanges of the considered 179 exchanges had less than a total of 10k USD in buy orders within 2% of the current price across all trading pairs. Most of them offered hardly any liquidity at all, while others only had decent liquidity in trading pairs with their own exchange token. See all 22 exchanges in the following graphic:

45 of the 179 considered exchanges had a total sum of buy orders within 2% of the current price across all trading pairs between 10k USD and 100k USD. This list contains decentralized exchanges such as Binance DEX or Switcheo but also newer exchanges like Beaxy. You can also find exchanges in this list, that claim to have a daily trading volume of over 100 million USD, but their combined order book depth implies, that most of their trading volume is artificial. See the results:

Of the 179 considered exchanges, 61 had a total sum of buy orders within 2% of the current price across all trading pairs between 100k USD and 1 million USD. Those are already respectable numbers, especially given that some of these exchanges offered just a small number of trading pairs. Coincheck is one of those exchanges, that had only one trading pair listed (BTC/JPY) but buy orders worth 773k USD within 2% of the current price. Other exchanges were building up a bigger total of buy orders across many trading pairs (for example Hotbit or CREX24 with ~660 trading pairs). Find the ranking below:

41 exchanges in the data sample had a sum of buy orders within a 2% range of the current price between 1 million USD and 8 million USD. Those numbers already indicate a very high liquidity per exchange. Again, some of these exchanges had this amount of liquidity even though they only offered a few trading pairs (itBit, Gemini or Bitflyer), while others built up a higher order volume with hundreds of different trading pairs (e.g. HitBTC, Gate.io or Kucoin). See the ranking below:

The TOP 10 exchanges in this ranking all had buy orders within 2% price range worth 8 million USD or more. Binance offered by far the highest liquidity with buy orders worth 51 million USD. Kraken was placed in the second spot while Huobi Global was placed third. Bittrex, OKEx and Liquid also had a total of over 10 million USD in buy orders, while Bitstamp, Digifinex, Bitfinex and Coinbase Pro all had buy orders over 8 million USD. Find the results in the graphic:

Ranking exchanges by overall order book depth with data provided by Coingecko reveals the exchanges with high liquidity way better than a ranking by (inflated) trading volume. Most exchanges seem to be honest about the liquidity in their order books, although a few of them might have inflated their books with fake orders.

The results of this analysis display, that liquidity of an exchange can be divided among few very liquid pairs or many different smaller liquidity pairs. It can be discussed, whether the sum of buy orders per exchange (within 2% of the current price) is the best comparison method – one could also use the average or median buy order volume per trading pair. However, such a ranking would favor exchanges that only list few selected high market cap coins, while it would disadvantage exchanges with many different small cap coins. Therefore, I think the sum of buy orders within a different range is the better comparison method.

This analysis can’t guarantee, that the collected data on order book depth is 100% correct. Some exchanges might have inflated their numbers or there might have been errors in the data collection process, since order book depth is still a new feature. Adding to that, even if the numbers are correct, order books change every second and therefore the numbers in this analysis might be different from current order books.

Furthermore, a high ranking in this analysis only indicates a high reported liquidity but doesn’t necessarily indicate whether an exchange is great from an overall perspective. A high-liquidity exchange can still block withdrawals or get hacked at any time. I would advise everyone to DYOR before using an exchange and to not keep too many funds in the exchanges’ wallet.

The recent implementation of order book depth per trading pair and per exchange on different coin comparison sites enable users to rank exchanges by liquidity instead of ranking them by inflated trading volumes. In this analysis, buy orders not further away than 2% of the current price of a coin were collected from 179 exchanges and the exchanges were then ranked by the sum of those buy orders per exchange. The results show, that order book depth can differ vastly per exchange and I hope this article emphasizes the importance of this new metric.

The cryptocurrency market is well accustomed to the ICO model. Most projects use the approach of an initial coin offering to finance their idea via crowdfunding, with investors receiving a substantial portion of the coins of the invested project in return. From the start of these projects, most of the coins are held by investors and there will be little to no influx of new coins. Only a few projects use a long-term distribution model, in which just a slight portion of coins is released at a time and the distribution is executed over years. Skycoin belongs to this group of long-term distributed coins and we will take an in-depth look at how its distribution is executed.

A total of 100 million Skycoin were generated in the genesis block.^1,2 On April 2nd in 2015, these 100 million Skycoin were separated into 100 addresses with each of it having a balance of 1 million Skycoin (transaction).³ These addresses are known as the distribution addresses. Each Skycoin, that is not contained in these addresses, counts as circulating supply.⁴ Since April 2015, coins are successively taken from the distribution addresses and are put into circulation. I analyzed all transactions of the distribution addresses and displayed them in a chart, that shows how many Skycoin were distributed over time:

As the chart shows, the circulating supply increased periodically. It looks like the distribution was either made directly from the wallet (slow growth) or the coins were taken out of a distribution address completely and were then distributed (sudden growth). Nonetheless, there were some distribution events, that we can attach to this chart.

The first initial public offering was announced in early 2014.^5,6 It was held one year later in April and May 2015,^7,8 where about 450 thousand Skycoin left the original distribution addresses. To be fair, it was not an usual IPO, it was more a private sale to dedicated early followers/contributors,⁹ who would not shy away from compiling the wallet on Linux.¹⁰ Because of the difficulties that came along with this early IPO, the team offered to continue selling Skycoin for the same BTC price of the IPO, until a circulating supply of about 2 million Skycoin would be reached.¹¹ If they actually sold more than 2 million from the first 3 million Skycoin distributed in 2015 and 2016 is hard to determine. What we know so far, is that 1 million Skycoin were sold to a large investor or a consortium of investors, that were held in one address. The coins were sent to this address in September 2015 and have recently been sold.¹² Concluding from that, an amount of 1.45 million Skycoin have evidentially been distributed via sales in 2015. Therefore, I would estimate that another 550k were sold to early followers, while the remaining 1 million Skycoin from the first 3 distribution addresses were distributed to team members and project contributors.

After some testing of a Skycoin distribution on a third-party platform,^13,14 the next big distribution event was held on the exchange C2CX in early 2017. About half a million Skycoin were sold in this event.¹⁵ Followed by this success, another distribution event was held on C2CX in August 2017, where 1 million Skycoin were eligible to be sold to the public.¹⁶ However, since I couldn’t find any source indicating how many Skycoin were sold of these 1 million Skycoin available and the coins were sold for twice the market price Skycoin was traded at back then, the distribution event probably wasn’t very successful. I would guess, that about 10% (100k Skycoin) of the available coins were sold in the event. Overall, the Skycoin distribution was pushed forward in November and December 2017 with over-the-counter sales, with Skycoin being both sold manually and fully automated via the Skycoin website. About 50 thousand Skycoin were distributed in the automated OTC, which can be seen in the Skycoin explorer (automated OTC address).¹⁷ Determining the amount of Skycoin sold via manual over-the-counter sales is more difficult. The amount of Skycoin sold in these sales was rather high, as Synth has stated in an interview.¹⁸ One address alone has received 1 million Skycoin in December 2017, which I suppose is an OTC sale to a large investor (or a consortium of investors). Given that 4 million Skycoin were put into circulation in 2017, I would estimate, that another 1 million Skycoin were sold via OTC sales in addition to the 1 million Skycoin distributed to the large investor address.

In 2018 many smaller distributions took place. It started with the distribution of Skycoin to buyers of the official Skyminer, which was sold for one BTC each. The first batch of 300 Skyminers was handed to buyers alongside 450 Skycoin each,^19,20 whereas the second batch of 300 Skyminers included a rebate of 650 Skycoin per buyer.^21,22 These miner rebates add up to a total of 330 thousand Skycoin. Then in May, Skycoin was listed on Binance. Since Binance is one of the largest cryptocurrency exchanges it presumably required a listing fee (which might have been paid in BTC or in SKY) and a certain amount of Skycoin to ensure liquidity in the orderbook. Finding out how many Skycoin were distributed to Binance for these purposes is difficult, a look at Binance’s Skycoin withdrawal address can provide some hints however. The trading of Skycoin on Binance started on May 24, deposits were enabled one day earlier.²³ The Skycoin withdrawal address on Binance was filled for the first time on May 25 with an initial amount of 503 thousand Skycoin. With the help of the Skycoin blockchain, I traced back the largest amounts of SKY deposited to Binance from this initial amount and it included 85 thousand Skycoin, that originated from a distribution address opened 5 months earlier. Therefore, I assume that these 85k Skycoin were given to Binance to provide the orderbook with liquidity. In June, Binance also held a trading competition and a lucky draw in cooperation with Skycoin, in which they gave away 50 thousand SKY.²⁴ From June onwards, the Skywire testnet went live and rewards were handed to participants monthly. 14 months later, these rewards have accumulated to a total of 530k Skycoin.²⁵ In July, around 700k Skycoin were distributed to an OTC seller, which became apparent after the investor sold all his coins on Binance a few months later (see his Binance deposit address for more information).²⁶

In December 2018, the circulating supply started to increase from 10 million to 15 million Skycoin at the end of March 2019. It can be assumed, that most of these coins were distributed via OTC sales,²⁷ so I would estimate around 4 million from these 5 million SKY introduced to the circulating supply from December 2018 to March 2019 have been distributed via over the counter sales. Skycoin also started trading at the crypto exchange LBank, which (according to an analysis of Skycoin’s blockchain) has received around 50k Skycoin for liquidity and airdrops. Another 1 million SKY has been released at the end of June 2019, which according to my research has been only used for payments/mining/bounties thus far. The circulating supply is currently at 16 million Skycoin.

The numbers shown in the graphic add up to a total of 10.395 million Skycoin, that have been mostly distributed via sales. The circulating supply is currently at 16 million SKY, although we have to consider that the Skycoin project didn’t necessarily distribute the coins directly from the distribution addresses, but rather took them out all at once and then placed them in several smaller distribution addresses. It is therefore possible that the real amount of Skycoin in circulation is lower than the amount displayed in the Skycoin explorer. Nevertheless, I can’t tell how many of these have been distributed, so let’s say 16 million is the actual circulating supply. Considering that approximately 9.7 million Skycoin were sold, (only) 60% of the circulating amount of Skycoin have been distributed via sales. So, what has happened to the other 40% of coins in circulation, that were not sold in distribution events?

A part of the Skycoin distribution strategy is to not offer all Skycoin to speculators, who might only be interested in short-term profits. Certainly, coins are sold to gather funds and provide liquidity to the market, but a vast amount of coins is distributed to people who contribute to the success of the project. Of the 25 million Skycoin that are immediately available for distribution,²⁸ 10-15 million will be offered in ICO and OTC sales.²⁹ Another 10 million Skycoin are reserved to incentivize Skywire by either handing out mining rewards or offering a Coin Hour buyback.^30,31 However, we don’t know if these 10 million Skycoin are fully part of the first 25 million distributable Skycoin. Furthermore, the Skycoin project is willing to fund interesting, dedicated projects within the Skycoin ecosystem, that move the project forward.³² There are also bounties available for individual contributors to the Skycoin project.³³ So, going back to the 40% of coins in circulation that were not allocated for sales, it is assumable that they were distributed to contributors of the project (alongside 500k for Skywire Testnet rewards).³⁴ In general, based on these numbers I would estimate that of the first 25 million Skycoin a minimum of 10 million SKY will be sold, while a maximum of 5 million SKY will be available to incentivize Skywire. I would further estimate that around 10 million SKY will be used to reward contributors to the project or fund projects, that move the Skycoin ecosystem forward. Let’s visualize these numbers:

As we have seen, 25 million Skycoin are immediately available for distribution. As soon as this mark of 25 million Skycoin in circulation is reached, another 5 million Skycoin become available per year, until there is a maximum of 100 million Skycoin available for distribution.³⁵ In addition to that mechanism, there is an unknown group of developers involved in the distribution process, who need to agree to unlock 5 million Skycoin. If just one of these developers votes against distribution, it can stop the whole process.³⁶ It is currently under consideration, if the growth should not be slowed down even more.³⁷ Adding to that, each core developer can receive up to 1 million Skycoin, which are locked for several years.³⁸ There are different mechanisms in place, that prevent the core developers from dumping the coins.^39,40

So, how could a concrete distribution plan look like? We saw, that it took 4.5 years to distribute 16 million Skycoin. Let us assume, that 6.5 million Skycoin will be distributed per year in 2019 and 2020, which is already a high amount compared to the distribution in the past. This would mean, that it would take until the end of 2020, until the immediately available 25 million Skycoin are distributed. After that mark would be reached, 5 million Skycoin would be unlocked per year. If, for the following 15 years, each of these Skycoin would be distributed in the same year, the whole amount of 100 million Skycoin would be in circulation at the end of 2035. Let’s visualize it:

After looking at how the past distributions were executed and depicting, how future distributions might look like, you are probably still wondering, why the Skycoin project made the decision for this long-term approach. It is in fact such a different approach compared to the distribution of the majority of coins and tokens. Most new cryptocurrency projects choose the distribution method of an ICO, where they sell a large portion of their coins, because they require a decent amount of funding to execute their idea. It is basically a crowdfunding approach to finance their project. However, this did not apply to the Skycoin project. The early developers of Skycoin claim, that they were very early into cryptocurrencies. They say, they owned Bitcoin before it reached the mark of one US dollar and are therefore pretty well off.⁴¹ Additionally, they stated that a lot of the early development of Skycoin was funded by a bunch of different companies,⁴² meaning the Skycoin project didn’t need to fundraise money to finance the development. So, unlike the majority of other coins, they could thoroughly plan their distribution. In their opinion, it is the best approach to distribute coins gradually, with the influx of new coins decreasing over time, which is similar to Bitcoin’s distribution rate.⁴³ They aim to sell small amounts of Skycoin at a time, and will reinvest the received funds into the project’s development and infrastructure.⁴⁴ To not effect the price per Skycoin negatively by increasing the circulating supply, they intend to release coins slower than the growth of their userbase.⁴⁵

Unlike most other cryptocurrencies, the Skycoin project prefers to use a long-term approach for the distribution of Skycoin. Of 100 million Skycoin, about 16 million were distributed in four and a half years since the first ICO in April/May 2015. I estimated, that 6.5 million Skycoin could be distributed in both 2019 and 2020, until 25 million Skycoin would be in circulation at the end of 2020. After that, 5 million Skycoin could be distributed per year, so that there could be 100 million Skycoin in circulation at the end of 2035. Talking about the target audience of these distributions, the project wants to not only distribute Skycoin via ICO and OTC sales, but also use the coins to incentivize bandwidth providers in the Skywire network and to generally reward people who contribute to the project. All in all, I hope this article increases the transparency about the Skycoin distribution and provides answers towards most questions around this subject.

Artificially created trading volume by crypto exchanges has become an increasingly concerning issue throughout the industry. With the interest in cryptocurrencies rising and their number one use case being speculation, the amount of crypto exchanges who want to get a share in the high-margin revenue market of trading fees is growing rapidly. However, most of these new exchanges use one of three common user interfaces and have the exact same digital assets integrated than other exchanges, so little to nothing sets them apart from their competitors. Accordingly, most of them have difficulties to attract a large number of customers and therefore decided to boost the position of their exchange in ranking sites like CoinMarketCap. As all of these rankings are currently based on trading volume, an increasing number of exchanges started to integrate bots that trade the same coins back and forth, creating hundreds of millions in trading volume even though some of those exchanges have hardly any users.

So, how can we rank exchanges differently than by trading volume? Fairly recently, I introduced a method called “order book depth” to rank exchanges by their provided liquidity. The metric displays the amount of coins that can be bought/sold in an order book per market order, without moving the price by more than one percent. Fortunately, with Coinpaprika the first exchange ranking site has stepped up and started to implement the feature. However, in this article I want to make another step forward and run a little comparison of order book depth data against trading volume.

As a case study, I made a snapshot of the order books of 104 exchanges, that had an accessible order book and a 24-hour trading volume of above 200k USD in their most frequently traded BTC/Fiat or BTC/Stablecoin trading pair on 21-03-2019. By the time the snapshot was taken, on 15 of these 104 exchanges, one could have sold 100 BTC (currently around 400,000 USD) per market order and wouldn’t have hit buy orders 1% below the current market price. I ranked these 15 exchanges by order book depth and also added the reported 24-hour volume on these trading pairs (according to exchange ranking site CoinPaprika) to the graphic, showing that trading volume and order book depth are not necessarily correlated:

As displayed in the graphic, the exchanges that have been around for a long time are also the ones, that have the highest liquidity. Bitfinex and HitBTC are positioned on the first and third spot of the list, providing enough depth in their BTC/Tether order books to sell over 700 BTC on Bitfinex and close to 500 BTC on HitBTC without hitting buy orders 1% below the current price. The biggest order book concerning the 1% price range of buy orders on the BTC/USD pair is provided by Coinbase Pro (551 BTC), followed by Kraken (430 BTC), Bitstamp (343 BTC) and Gemini (227 BTC). With Liquid, Bitflyer and Coincheck three exchanges also made it into the list, with a BTC/JPY (Japanese Yen) trading pair.

However, in contrast to these 15 very liquid exchanges, 89 of the 104 exchanges failed to provide enough liquidity to sell over 100 BTC per market order without hitting buy orders 1% below the current price. Regarding the 1% price range, one could have sold 50-100 BTC on 12 exchanges, 20-50 BTC on 11 exchanges, 10-20 BTC on 15 exchanges and 1-10 BTC on 23 exchanges. On 28 of these 104 exchanges, which all had a daily trading volume above 200k USD in their most frequently traded BTC/Fiat or BTC/Stablecoin pair, one could not have sold more than 1 Bitcoin without hitting buy orders 1% below the current price.

How does the evaluated order book depth relate to the reported trading volume of the considered trading pairs on these 104 exchanges? The data suggests that there are three types of exchanges: Some don’t artificially inflate their trading volume, some partly inflate it but have significant real trading volume as well and some exchanges have mostly artificial trading volume and almost no real volume.

In the data set, the exchanges with the highest liquidity in their order books mostly generated a double-digit million USD trading volume in this specific trading pair. To name a few: Bitfinex was at 41 million USD, Kraken at 20 million USD, Bitstamp at 28 million USD and Bithumb was at 61 million USD. Remember, these are exchanges with a very high liquidity. Interestingly enough, the average daily trading volume in the evaluated trading pairs across all 104 exchanges was at 43 million USD. So, on average each exchange in the list had more daily trading volume than for example Coinbase Pro or Gemini.

To further analyze the connection between trading volume and order book depth, I ran a correlation test between the two. One should expect a slightly positive correlation between the two factors, since they seem to be intertwined. However, that wasn’t the case. While an outcome of 1 in the correlation test determines a perfect positive correlation and an outcome of -1 determines a perfect negative correlation between two input variables, the correlation coefficient between trading volume and order book depth was rated at 0.02. It shows, that both factors are completely uncorrelated and there is not even a slightly positive relationship between them.

Let’s declare the trading volume on Coinbase Pro, Kraken and Gemini as real volume. All of these have packed order books, but don’t have that much volume (compared to other crypto exchanges). For example, the order book depth of Gemini, Huobi and Liquid was in the same range in the analyzed data sample (around 200 BTC could be sold with the price not declining by more than 1%), but the trading volume on both Huobi and Liquid (each around 100 million USD) was 10 times as high as on Gemini (around 10 million USD). Adding to these, the daily trading volume on Binance for example was 2.5 times as high than the volume on Coinbase Pro, even though Binance had only 22% of Coinbase Pro’s liquidity in their order books.

Does that mean that all the volume on Binance, Huobi and Liquid is fake? No, it doesn’t. Does it mean, that the volume on Binance, Huobi and Liquid is partly inflated with artificial volume? Probably, but not necessarily. Probably the exchanges inflate their real trading volume with artificial volume to attract traders. Probably all their volume is real and caused by traders who just like to trade more on these exchanges than on other exchanges due to a better trading experience or lower trading fees. As long as an exchange provides decent liquidity in their order books, it is hard to prove that their volume is partly or entirely fake.

However, fake volume is pretty clearly generated by some exchanges that claim to generate multiple million USD in daily trading volume, but one cannot even sell a few BTC without crashing the price on the exchange. To give you an example: Of the analyzed 104 exchanges, 16 reported a daily trading volume of over a million USD in a BTC/Fiat or BTC/Stablecoin trading pair, but you could not even sell one (!) Bitcoin without making the price decline by more than 1%. These exchanges are clearly trying to trick customers and should be excluded from rankings by trading volume.

The biggest limitation of this analysis is its limited dataset. The reported order book depth is based on a snapshot of a single day and was partly refined with trading data from two other days. Unfortunately, there is not yet a central source available for order book depth, which makes the process of collecting data extremely time-consuming. Adding to that, some order books were not fully accessible and were therefore excluded from the analysis. However, that doesn’t mean the analysis is not significant – if an exchange failed to provide liquidity in the snapshot, it most likely can’t provide liquidity in general.

Additionally, it has to be noted that the amount of BTC used in the analysis originates from the order books provided by the particular exchanges. Some of these order books may be intertwined because an exchange might display order book entries of other exchanges on their own exchange, that are integrated through a trading API. Furthermore, alongside the reported trading volume, the entries in an order book can be faked. It would be possible for an exchange to make orders disappear in the second a user hits the buy/sell button and make these orders appear again, after the trade has been executed. However, it would certainly damage the reputation of these exchanges, so I am not sure, how long they could sustain a faked order book.

I also want to add, that the exchanges mentioned in the list are not necessarily the best crypto exchanges, just because they provide liquidity. A lot of controversy has been surrounding Bitfinex or Tether for the past couple of years and HitBTC has been in the news recently for not allowing their users to withdraw funds. However, this list and the underlying metric of order book depth is thought as an improvement towards ranking exchanges by volume, since trading volume is often understood as liquidity, but in the current state of the cryptocurrency market, reported trading volume and liquidity on an exchange are totally uncorrelated.

In this article, I used the method of order book depth to evaluate the trading volume on exchanges. In a data set of the most frequently traded Bitcoin/Fiat or Bitcoin/Stablecoin pairs on 104 exchanges with a daily trading volume above 200k USD, I identified the 15 most liquid Bitcoin exchanges, where one could sell over 100 BTC without the price declining by more than 1%. In addition to these, I showed the allocation of sellable Bitcoin on less liquid exchanges. The average daily trading volume in the evaluated data set per trading pair on each exchange was at 43 million USD, which was higher than the trading volume on some of the most liquid exchanges. As a final conclusion, a correlation test showed that trading volume and order book depth were completely uncorrelated.

Utility tokens are a fairly new and innovative asset class. In difference to stocks, where the value highly depends on the performance of the company invested in, the utility token gains value depending on its usage. Whether it is just used as the fuel of a platform or has several use cases across different platforms and products, the price should highly correlate with its number of users. However, in the past we have mostly seen the downside of the utility token in the cryptocurrency market, with major price declines due to no usage and no adoption. With not many successful utility tokens in the market, it is difficult to estimate the potential market cap of utility tokens with adoption. However, outside of the cryptocurrency market, the gaming industry has successfully integrated virtual currencies into their products in recent years, giving us a glimpse of how successful utility tokens could be. In this article, I will take a look at two successful in-game currencies to see, how their financial data ranks among other cryptocurrencies.

Virtual currencies in games are a relatively new mechanism and have been introduced as part of the “Freemium” model. Freemium is a business model where users can play the basic features of a game for free but advanced features or the purchase of in-game items requires payments. After some Freemium titles revealed the potential revenue generated with virtual currencies, major video game publishers also started to integrate virtual currencies into their products. While in some games purchasable items can just be used to change the appearance of an avatar, in-game currencies have seen tremendous interest in games, where the purchasable items can give a gamer a competitive edge over other gamers. This is especially the case in sports games, where gamers can buy better players for their team with the help of virtual currencies.

One of these sports games with a purchasable in-game currency is the NBA 2K series. Video game publisher Take-Two has introduced virtual currencies in NBA 2K13 and they have seen tremendous interest ever since. While Take-Two already called the sales of virtual currencies in NBA 2K13 “high-margin revenue”, sales of virtual currencies in the NBA 2K series grew by an incredible rate of 150% in both 2014 and 2015 and by about 70% in both 2016 and 2017. Growth in 2018 has slowed down a bit but is still at a high-flying 34%.

Unfortunately, Take-Two doesn’t disclose the total revenue generated with virtual currency sales in NBA 2K publicly, however, they have named the increases in revenue generated by the NBA 2K series in fiscal year 2017 (265.8 million USD) and 2018 (159.4 million USD). Valuing these numbers against the increases in copies sold and the percentage increase of revenue with virtual currencies enables us to estimate the increase in revenue with virtual currencies in NBA 2K for the fiscal years 2013 to 2018, which can be seen in the following graphic. Don’t take these numbers as an exact value (it is just an estimation) but they should be good enough to give us a hint of how much revenue Take-Two is generating with virtual currency sales in the NBA 2K series.^1-11

Aside from the NBA 2K series, the sports gaming sector is dominated by EA with yearly releases in the FIFA series, Madden NFL series, NHL series and NBA Live series. All of these games have an integrated “Ultimate Team” mode, where gamers can collect players and build a team to compete against each other online. Players can be obtained with coins or points, whereby coins can be gained with in-game success and points can be bought with fiat money. Points enable gamers to buy item packs with different players included in them, which might be better than the players already included in the gamers’ team but might also be a lot worse.

These in-game buys with fiat money are an extremely successful revenue source for Electronic Arts and accounted for 21 percent of EA’s net revenue in fiscal year 2018, which roughly equals 1.1 billion USD. In-game purchases in Ultimate Team are growing at a tremendous rate – in fiscal year 2017 its net revenue was at around 775 million, while it was at around 660 million in fiscal year 2016. Unfortunately, EA doesn’t disclose percentages or totals of their Ultimate Team revenue per game, so we just have to regard it as a total per all Ultimate Team modes.^12-15

So, how would these in-game currencies rank among other cryptocurrencies regarding financial data? They are different from most cryptocurrencies, since those mainly have a fixed supply and an increase in demand results in an increase in price. However, an increase in demand for these in-game currencies just leads to an increase in tokens sold, NBA 2K’s VC or EA’s Ultimate Team points don’t have a max supply and therefore stay at the same fixed price (unless they issue a discount). It makes them easier to compare to ICOs than to the market cap of cryptocurrencies, because with ICOs we usually look at amount of money raised (which is the actual amount of money put into this ICO) while the market cap just multiplies the current price of a cryptocurrency with its circulating supply (e.g. 10 million invested in a coin might result in a 100 million increase in market cap).

Positioning these two in-game currencies in a ranking of money raised by ICOs shows their huge success. EA’s net revenue with the sale of virtual currencies in their Ultimate Team mode from fiscal year 2015 to 2018 is at around 3.1 billion USD and might even surpass 4 billion once fiscal year 2019 is completed on March 31, 2019. The estimated net revenue generated by Take-Two with the sale of virtual currencies in the NBA 2K series from fiscal year 2013 – 2018 is at around 1.2 billion USD. There are only two ICOs that raised comparable numbers with the EOS ICO (4 billion USD raised) and the Telegram ICO (1.7 billion USD raised). Adding to that, these ICOs are huge outliers concerning amount of money raised, no other ICO has raised even close to a billion U.S. Dollars and only a small number out of thousands of ICOs has raised over 100 million USD.¹⁶

This net revenue generated in both sports game series by sales of their respective virtual currencies could be viewed as their market cap in the current form the tokens are sold. Every sold token moves from the infinite total supply to the circulating supply with every token having a fixed price. Ranking these market caps in CoinMarketCap’s top 100 ranking places both in-game currencies among the top cryptocurrencies. With a market cap of 3.1 billion USD, EA’s Ultimate Team is ranked below EOS and above Bitcoin Cash on place 6. NBA 2K’s VC would be placed on position 13 with a market cap of 1.2 billion USD below Cardano and above Bitcoin SV.

Nonetheless, with the market cap just being an indicator of how much an investor would pay for a purchase of the total supply at the current price, it does not represent how much money went into or out of a particular asset. For example, with just a 24-hour volume of 26.4 billion USD, the overall market cap of cryptocurrencies listed on CoinMarketCap fell from 395 billion USD to 330 billion USD on February 6, 2018, which is a market cap decline of 2.64 times the volume the coins were traded at. So, the question is how much does the market cap of a cryptocurrency increase, if it has a fixed circulating supply and a certain amount of money is invested in it?

According to an estimation by Thomas Lee, the overall cryptocurrency market cap increases by 25 billion, every time 1 billion USD goes into the crypto market.¹⁷ That estimation might have its origin in the bull market and honestly, I think 25 times as a figure is quite high but I generally agree that a billion invested in the crypto market leads to a multi-billion increase in market cap, due to thin orderbooks and a lack of liquidity for large buy orders as we have seen in 2017. Vice versa, a billion cashed out of the market leads to a multi-billion decrease in market cap, which we witnessed in 2018. Let’s go with a more conservative approach than Thomas Lee and say, that the cryptocurrency market cap increases by 5-10 billion for every billion invested in it. The following graphic shows the hypothetical market cap of the two in-game currencies under the consideration of a multi-billion dollar market cap increase for every billion invested in the asset:

Due to the fixed price of Ultimate Team points or the VC sold in the NBA 2K series, we know how much money was invested in these during the last couple of years. Take-Two had an estimated net revenue from selling virtual currencies in the NBA 2K series of around 1.2 billion USD in the last 6 years, with an estimated 470 million from fiscal year 2018 alone. However, they did all that with just 9 million copies sold of NBA 2K18 in fiscal year 2018. While this is certainly a high number for a sports game, think about the potential we are talking here.

Let’s say an application can create the same demand than the NBA 2K series for their virtual currency but has 90 million users instead of 9 million users. Then we are not talking about 470 million USD put into the token in one year but rather 4.7 billion USD. Connecting that to the fact that one billion USD invested leads to a multi-billion USD increase in market cap, shows us the potential of a very successful utility token. Let’s say it leads to 5 times the market cap, then we are looking at a 23.5 billion USD market cap for that 90 million user application, which is currently around 2x the market cap of Ethereum or XRP. Let’s say it leads to 10 times the market cap (47 billion USD) or Tom Lee’s suggested 25 times increase, then we are looking at a 117.5 billion USD market cap for the application, which is around 50 billion higher than Bitcoin’s current market cap and underlines the huge potential of highly demanded utility tokens.

While utility tokens are an innovative new financial asset, the cryptocurrency market has seen its majority of utility tokens stay without many use cases or users, resulting in heavy price declines of these tokens. On the contrary, the gaming sector has successfully integrated virtual currencies into video games. Especially the sports gaming sector has created a huge demand for their tokens by providing gamers with better players in exchange for purchasable in-game currencies. The NBA 2K series or EA’s Ultimate Team mode are perfect examples for this success with the generation of multiple billion USD in net revenue by selling their virtual currencies. If a cryptocurrency reaches a comparable or even higher demand than these games, it would certainly be placed among the top cryptocurrencies and could reach a market cap higher than Ethereum’s or XRP’s current market cap, with even a chance to surpass Bitcoin’s current market cap.