Rank Exchanges by Orderbook Depth!

Orderbook Depth
ORDERBOOK DEPTH
04.01.2019
STOP RANKING CRYPTO EXCHANGES BY VOLUME!
CHRISTIAN OTT
AUTHOR
Introduction
Ever heard this sentence by an aspiring crypto exchange doing a crowdfunding campaign? “After our ICO is complete, we aim to be a TOP 10 exchange.” Or this one by small crypto projects: “We definitely are in talks with TOP 10 exchanges and want to get listed on them.” Well, I bet you heard them before, because it seems like everybody wants to be in this mysterious TOP 10. But which kind of TOP 10 are they talking about? TOP 10 by number of users? TOP 10 by security? TOP 10 by user-friendliness? No. Unfortunately, the wide audience of speculators and projects seems to care only about one metric regarding crypto exchanges and that is trading volume. In this article, I will discuss why that is not ideal and show an alternative, that should provide better information about the liquidity of an exchange.

Volume is not the best indicator for liquidity
The challenge that comes with volume is not, that it wouldn’t be a good metric. Concerning prices of cryptocurrencies, I think volume should be considered way more in the evaluation of whether a specific cryptocurrency is oversold or overbought, than it is now (Read my article on the Bitcoin ATVWAP for more information). But while comparing exchanges, it is difficult to look at volume, since most of the cryptocurrency exchanges execute their trades in a centralized database and can therefore just trade the same coins back and forth between two bot accounts. While that is not a bad thing in itself, high volume indicates liquidity on the exchange. Users join an exchange and think, they can sell large amounts of a cryptocurrency there, which is apparently not the case, because there might be only a few bots trading.

Orderbook depth by intervals
What users really want to know about a trading pair on an exchange is not, if it has a lot of volume, but whether it has enough liquidity in the orderbook, so that users can buy and sell a substantial portion of coins without moving the price by 10%-20%. Therefore, comparing exchanges and trading pairs by orderbook depth rather than by trading volume should give a way better indication of the liquidity of an exchange/trading pair. To best evaluate the trading liquidity provided by the orderbook, a nested approach could be chosen. For example, you could calculate how much the price of a particular coin would decrease, if you sell its equivalent of 1k USD, 10k USD and 100k USD per market order on a specific trading pair.

As a case study, I did that for the TOP 10 trading pairs by volume (according to CoinMarketCap) of Ether. I looked at the orderbooks of these trading pairs and calculated, by which percentage the price would decrease if you sell 10 ETH, 50 ETH, 100 ETH, 500 ETH and 1000 ETH per market order. Unfortunately, some of them only offered a small insight to their orderbook in their user interface, by only showing the best asks and bids. Nevertheless, it became obvious that trading volume doesn’t necessarily correlate with orderbook liquidity.

OEX and ZBG for example, which were listed on place 1 and 4 of CMC’s list of highest volume trading pairs for Ether on 01-01-2019, didn’t even provide enough liquidity to sell 50 ETH at the current market price. If you would have sold 50 ETH per market order on ZBG, buy orders 10% below the actual price would have been hit. On OEX, the price would have gone down by 32% with a market sell order of 50 ETH. BitForex and Bibox provided more liquidity for lower sell volumes, so you could sell 50 ETH per market order nearly at market price, but if you would have sold 500 ETH, buy orders 80-99% below the actual market price would have been hit. The best liquidity was provided by Huobi, Bitfinex, Okex and Binance, where you could sell more than 1000 ETH per market order, without even hitting buy orders 1% below the actual market price.

Orderbook depth by 1% decline
However, this nested approach is a bit too complicated to display, so I tried to evaluate orderbook liquidity by measuring, how many units of a specific cryptocurrency can be sold via market order for the actual market price. Let’s say the actual market price in the volatile and illiquid cryptocurrency market is the price a token is currently traded at plus/minus 1%. So we would have to measure, how many units of a coin can be sold per market order, without hitting buy orders 1% below the current market price. Of course, it has to be noted, that these numbers change multiple times per second. However, it should still provide interesting insights about which trading pairs’ orderbooks offer high liquidity and which ones do not.

As a case study, I made a snapshot of the orderbooks of 74 exchanges, that had a 24-hour trading volume of above 500k USD in their most frequently traded ETH/Fiat, ETH/Tether or ETH/BTC trading pair on 02-01-2019. By the time the snapshot was taken, on 19 of these 75 exchanges, you could have sold 1000 ETH per market order and wouldn’t have hit buy orders 1% below the current market price. I ranked these 19 exchanges in the following graphic by the amount of ETH, that could have been sold on the exchange per market order, without hitting buy orders 1% below the actual market price. I also added the reported 24-hour volume on these trading pairs (according to CoinMarketCap) to the graphic, showing that trading volume and orderbook depth is totally uncorrelated:
83.465 MILLION USD7,787 ETHETH/TETHERBITFINEX7.465 MILLION USD6,180 ETHETH/USDBITSTAMP9.728 MILLION USD4,343 ETHETH/BTCHITBTC24.705 MILLION USD3,917 ETHETH/EURKRAKEN33.300 MILLION USD2,930 ETHETH/USDCOINBASE PRO5.098 MILLION USD2,764 ETHETH/BTCPOLONIEX6.917 MILLION USD2,598 ETHETH/USDGEMINI133.006 MILLION USD2,114 ETHETH/TETHERHUOBI1.130 MILLION USD1,955 ETHETH/TETHERBITRUE83.465 MILLION USD1,760 ETHETH/KRWBITHUMB133.481 MILLION USD1,650 ETHETH/TETHERBINANCE45.047 MILLION USD1,644 ETHETH/TETHERIDAX3.203/1.240 MILLION USD1,426 ETHETH/BTCBITTREX/UPBIT9.755 MILLION USD1,407 ETHETH/KRWCOINONE146.938 MILLION USD1,078 ETHETH/TETHEROKEX7.073 MILLION USD1,069 ETHETH/BTCCOINHUB96.823 MILLION USD1,066 ETHETH/TETHERCOINEAL26.948 MILLION USD1,030 ETHETH/CNYTOPBTCPAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:PAIR:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:24H PAIR VOL:ORDERBOOKDEPTH OF EXCHANGES'HOW MANY ETH CAN BE SOLD ONTHESE EXCHANGES PER MARKETORDER IN A SPECIFIC TRADINGPAIR, WITHOUT THE PRICEDECLINING BY MORE THAN 1%:
As we can see, the exchanges that have been around for a long time are also the ones, that are providing the highest liquidity. Bitfinex at number 1, Bitstamp on the second place and HitBTC, Kraken and Coinbase Pro positioned on places 3-5, while most newer exchanges, that claim to have a lot of volume, fail to make that list.

Critical discussion
The amount of ETH listed in the graphic originates from the orderbooks provided by the particular exchanges. Alongside the reported trading volume, the entries in an orderbook 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 orderbook.

Additionally, it has to be noted, that this list cannot be seen as an overall indicator, on how much buying interest there is for Ether across the market. There are interdependencies between the liquidity on different exchanges. Bittrex and Upbit for example, are sharing the same orderbook on the ETH/BTC pair. Accordingly, the number of available buy orders go down on Upbit, if somebody is selling on Bittrex. Some of the exchanges might also display orders on other exchanges in their own orderbook, because they run trading bots on these other exchanges and will execute orders there immediately, if they are hit on their own exchange.

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 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 orderbook 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.

Wrap-up
In this article, I discussed in which ways liquidity of cryptocurrency exchanges can be evaluated. I showed, that trading volume is not a good indicator for liquidity, because exchanges can simply create a ton of trading volume without any users. A better measurement for liquidity should be orderbook depth, which I expressed as units of a cryptocurrency, that can be sold per market order without hitting buy orders 1% below the actual market price. A case study with data from 75 exchanges revealed, that only 19 provided enough liquidity to sell 1000 ETH per market order, without the price declining by more than 1%. The case study also showed, that trading volume and orderbook depth were completely uncorrelated.

Bitcoin ATVWAP

BITCOIN ATVWAP
BITCOIN ATVWAP
26.12.2018
ALL-TIME VOLUME WEIGHTED AVERAGE PRICE
CHRISTIAN OTT
AUTHOR
Introduction
During the course of this crypto bear market we have seen lots of attempts to determine, whether the whole market is oversold or not. The majority of these attempts is made with technical analysis, as you can see by the vast amount of charts posted on TradingView and on Crypto Twitter. While TA is certainly a powerful tool, most of these analysts seem to change their mind three times a day and fail to predict the future more often than not, which makes it difficult to find the few good analysts among many bad ones. In addition to TA, there are metrics like CoinFairValue, which assigns a fair price to a coin based on a variety of factors or the Crypto Fear and Greed Index, that calculates a value between 0-100 to display the sentiment of the crypto market. In this article, I want to present you another method to look at crypto prices, which is the “all time volume weighted average price” (ATVWAP).

Why ATVWAP and not simply average price?
In the last couple of weeks, I saw an increasing number of posts about the average price of Bitcoin. The last 8.5 years of Bitcoin’s daily prices were added up and divided by the number of days it traded publicly. The result is an average price around 1500 USD and the narrative started to spread, that these 1500 USD are the fair price of Bitcoin. While any price action is certainly possible for Bitcoin (also 1500 USD and below), this approach of determining a fair price by looking at the average price is not reasonable.

If you calculate an average price of Bitcoin, every day receives the same weight in the calculation. Why is that bad? In the early days (2010 – 2012), Bitcoin didn’t have a lot of traction. Many people didn’t know about it and therefore its trading volume was quite low compared to today’s standards. So, in a calculation of an all-time average price, a day in 2010 with 2000 BTC trading volume is weighted the same as a day in 2018 with over a million BTC trading volume. However, the price is way more significant with a high trading volume. The more people buy or sell Bitcoin for a certain price, the more it is an indicator that many people agree on this price being fair in that specific moment. Let’s take a look at the changing volume over the past few years for Bitcoin:
BITCOIN(IN BTC)AVG. DAILY TRADING VOLUME OF0100k200k300k400k500k600k700k800k201820172016201520142013201220112010
Trading Volume
As we can see, the trading volume on Bitcoin has increased exponentially. The data on this is mainly from CoinMarketCap.com (from 2014 onwards), Bitcoinity.org (before 2014) and Bitcoincharts.com (before 2014). Of course, we have to consider that some exchanges’ volume consists 95% of wash trading and certainly, some of the volume displayed in the graphic is not investors buying Bitcoin, but wash trading happening between different bots. However, CoinMarketCap excludes several exchanges from their volume calculation and therefore some of the most obvious wash trading exchanges should not be included in this analysis. Adding to that, the CoinMarketCap volume doesn’t include OTC trades, which reportedly have been very high throughout 2018 and should equate the fake volume included in this graphic.

ATVWAP
The graphic shows, that the volume increased over the years and therefore an average price of Bitcoin in 2011 is not as significant as an average price in 2018, since way more Bitcoin are exchanged in 2018 than in 2011. Concluding from that, weighting the price of Bitcoin by volume to determine a volume weighted average price (VWAP) should give a way better view on a “fair” price of Bitcoin, than the pure average price. While you can use different timeframes to calculate a VWAP, I chose an all-time VWAP (ATVWAP), since it should provide us with the best information. To calculate it, you need to multiply the price of Bitcoin with its volume for each day it was traded, add up the results and divide it by the all-time total trading volume. The following chart results from that:
BITCOIN(IN USD)ALL-TIME VWAPATVWAP (USD)VOLUME(BTC)DailyPrice (USD)201120122013201420152016201720180.05$0.50$5$50$500$5K$50K$
Insights
We can see, that Bitcoin had three major bull runs: One from 0.05 USD to 30 USD, another one from 2 USD to 1100 USD and the last one from 200 USD to 20k USD. Each time after the bull run, the price declined massively. The ATVWAP shows some interesting insights for Bitcoin’s price action during the declines. In one of the three price declines, the ATVWAP was very close to the actual bottom. In January 2015, the ATVWAP was at 210 USD and Bitcoin’s price bounced from the 200 USD level. In 2011 and 2018 however, the price went below the ATVWAP, so it cannot be considered a clear bottom for every major price decline. In 2011, the ATVWAP went as high as 6.7 USD after the bull run, but Bitcoin’s price went down to 2.2 USD. So, if you would have bought at the first time Bitcoin hit the ATVWAP, the price would have declined another 67%. A decline after Bitcoin’s price hit the ATVWAP level also happened in 2018, where the ATVWAP was as high as 4850 USD while Bitcoin hit its (temporary?) bottom at 3120 USD.

Therefore, buying at the first time Bitcoin’s price hit the ATVWAP didn’t necessarily turn out profitable in the short-term. However, it can be noticed in the chart that after the two declines in 2011 and 2015, Bitcoin had an accumulation period close to the ATVWAP. “Close to” means in this volatile market a price difference of +25% to -25% in comparison to the ATVWAP. In 2012, this accumulation period lasted from January to July 2012, where the price hovered around the 4.5 USD to 6.5 USD level, with the ATVWAP being at 5.5 USD. In 2015, Bitcoin stayed mostly above the ATVWAP (at 210 USD), but didn’t reach the mark of 300 USD until late October. So, if history would repeat itself, which doesn’t necessarily happen given the small sample size, there would be an accumulation period of Bitcoin from the beginning of 2019 till the 2nd half of 2019, where Bitcoin should hover around the ATVWAP (currently around 4800 USD). However, it should also be noted that the ATVWAP is an adaptive metric. If Bitcoin should stay below 4000 or even go lower on huge volume, the ATVWAP will go lower as well.

Wrap-up
In this article, I discussed the all-time volume weighted average price (ATVWAP) as an overlooked method to analyze Bitcoin’s price. Throughout its history, Bitcoin traded mostly above the ATVWAP. After the two major bull runs in 2011 and 2013, the price declined massively and found support only once at the ATVWAP level. However, in both cases there was an accumulation period around the ATVWAP for several months. In the recent price decline during 2018, Bitcoin’s price also went below the ATVWAP. If history will repeat itself, we could see an accumulation period for several months around the ATVWAP level in the future. However, given the small sample size there is no guarantee for such a price movement.

Pine64 Skyminer

Pine64 Skyminer
PINE64 SKYMINER
14.05.2018
BUILDING A SKYMINER WITH SOPINE MODULES
CHRISTIAN OTT
AUTHOR
CHRISTIAN’S FRIEND
MINER + SOFTWARE
EDOARDO COEN
3D PRINTABLE CASE
Introduction
Skywire is Skycoin’s vision of a new internet, which is private, fast and without censorship. During the testnet, which is fast approaching, Skywire will run on top of the current internet. After that test phase, the Skywire mainnet will be launched, which means that Skywire will run as an independent mesh network. To realize this vision, Skywire needs to run on top of a multitude of servers, spread all over the world. These servers can either be bought directly from the Skycoin Project, who aim to develop the best hardware possible for Skywire or they can be built by users themselves, who want to participate in the network. I chose the second option and created a so-called DIY Miner.

Official and DIY Miners
The first generation of Skyminers, that were built by the Skycoin Project, contain eight Orange Pi Primes.1 In the first batch of production, only 300 Skyminers were built,2 due to bottlenecks in the production process.3 The demand is certainly higher, by the end of March already 4000 people have registered in the official mailing list to purchase a Skyminer.4 Fortunately, you can participate in the Skywire network with your own custom-built Miner.5 However, there is a manual whitelisting process for DIY miners, if you want to be eligible for rewards.6,7 The only requirement for the DIY miners seems to be, that they need to use solely 64 bit processors, since this is a core requirement of Skywire’s underlying programming language Golang.8

Pine64 Miner with Sopine Modules
So, since I registered way too late in the official mailing list, I sat together with a friend and we decided to create a DIY miner. We wanted to create a more compact version of the Skyminer, which should be equal in terms of computing power to the official Skyminers. The PINE64 clusterboard suited perfectly for that.9 We could use it as a basis for the miner and just plug seven modules into it, with each of them powered by a Quad-Core ARM Cortex A53 64-Bit Processor with 2G LPDDR3 RAM memory and an integrated MicroSD slot.10 Therefore, each module possesses the same computing power as the Orange Pi Primes used in the official Skyminer.11 However, in our miner there are just seven processors built-in, while eight are used in the official Skyminer. We also bought seven SanDisk Micro SD cards with 16 GB storage capacity, that were plugged into the modules. As a case, we chose the Chieftec IX-03B-OP, which fitted perfectly. As operating system, we used Armbian for SoPine64. If you are looking for pre-configured images for the Pine64 Skyminer, Skyguy from skywug.net has something for you. With just a size of 22.0cm x 19.7cm x 6.3cm,12 we created a very compact custom Skyminer. Take a look:
3D Printable Case
A few weeks after the first release of this article, Edoardo started with the build of a 3d printable case for the Pine64 miner. At first, he measured the clusterboard and combined that information with a general scheme of a Mini-ITX motherboard. Then he made a few test prints, until he had found the perfect size for the case. As material, he chose high temperature plastic, that can endure temperatures up to 80 degrees Celsius alongside 4 woodscrews. Since the case and the hardware itself should be able to endure high temperatures, he didn’t include a fan. Speaking about the design, Edoardo included the Skycoin logo and the term ‘Skyminer’, written with the Skycoin font, on top of the case. Since each SoPine module on the clusterboard itself signals its execution for the outside world through constant blinking, he placed the numbers 1-7 directly above the blinking indicators to make it visible from outside the case, if everything is running correctly. And that’s about it! The final result is an absolute beautifully designed case! If you want to print the case yourself, just download the source file on Thingiverse. Take a look at a picture of the case below, you can also find a video about it on YouTube:
Wrap-up
With thousands of people in the official waiting list for purchasing an official Skyminer, we realized it would take months until we were eligible to buy an official one. Since we wanted to participate in the Skywire testnet, it was necessary for us to build a custom miner. After looking at the specification of the official first-gen Skyminer, we went on to build a more compact one with the use of Sopine modules on top of a Pine64 clusterboard. Except for one node less, our miner contains the same computing power than the official Skyminer and can therefore definitely compete with other nodes in the network.

Parts List
1x
Pine64 CLUSTERBOARD With 7 SOPine Compute Module Slots
Mainboard, ~100$
7x
SOPINE A64 compute modules
Modules, ~29$ (each)
7x
SanDisk Ultra 16GB microSDHC
Storage, ~12$ (each)
1x
Chieftec IX-03B-OP
Case, ~40$
1x
Ethernet LAN Cable
Cable, ~10$
1x
Clusterboard Power Supply (depends on your region)
Cable, ~16$
1x
Armbian for SoPine64
Operating System, free
Sources – Official Skyminer
1
“Yes. Actually 8. And they are orange pis. They are 64 bit processors, not 32 bit like raspberry pi.”
Synth; Telegram; Skycoin main channel; 10.07.2017
2
“Shipping schedule: – 50 miners are available for shipping immediately- 250 miners should be available by the 2nd week of February.”
Steve Leonard; Telegram; Skycoin main channel; 10.01.2018
3
“We are trying to launch the Skycoin Skywire miner, which is the hardware platform for doing this decentralized internet. We are trying to ship the first units within a month. We have a supplier and we want three thousand CPUs, but they only have one thousand CPUs so we have to wait three weeks for the factory to produce more. So we are dealing with supply chain and how do we ship it and things like will customs reject it because they are electronics.”
Synth; YouTube; Coin Interview with Skycoin; 30.10.2017
4
“we are past 4000 people on the skyminer mailing list”
Steve Leonard; Telegram; Skycoin main channel; 27.03.2018
Sources – DIY Miner
5
“While Official Skyminers will be on the whitelist by default (upon submission and receipt of their public keys), DIY Skyminers will be allowed to join the whitelist based on the benchmark set by the Official Skyminer’s hardware configuration. DIY Skyminers will be required to provide detailed specifications and photos, submitted to the corresponding team for review. Qualified DIY Skyminers will be added into the testnet whitelist.”
Skycoin; Official Blog; Skywire Testnet FAQ; 05.04.2018
6
“Note that any computer can become a node on the network, however, only whitelisted Skyminers (all Official and selected DIY) will be participating in the economic model testing program, and eligible for rewards.”
Skycoin; Official Blog; Skywire Testnet FAQ; 05.04.2018
7
“the purpose of the whitelist is to stop 3000 nodes from joining the network before we have scaled up the backend and testing it”
Synth; Telegram; Skycoin main channel; 17.02.2018
8
“its not just orange pi, but is orange pi prime; but yes you can build your own cluster and for technical users we will register theri public keys etc for the test net – it has to be 64 bit processors that can run 64 bit linux because golang garbage collector does not work well on 32 bit”
Synth; Telegram; Skycoin main channel; 15.10.2017
Sources – SOPINE Miner
9
“The PINE64 clusterboard can host up to 7 SOPINE A64 compute modules, expanding its functionality as a fully featured cluster server. The clusterboard has and inbuilt 8 Gigabit Ethernet port unmanaged switch.”
PINE64; Official Website; CLUSTERBOARD With 7 SOPine Compute Module Slots; 31.01.2018
10
“SOPINE A64 is a compute module powered by the same powerful Quad-Core ARM Cortex A53 64-Bit Processor used in the PINE A64 with 2G LPDDR3 RAM memory, Power Management Unit, SPI Flash and integrated MicroSD Slot (for bootable OS images microSD card). SoPine module has 5 years LTS (Long term Supply) Longevity: committed supply at least until March 2022. There is one year warranty period for SoPine Module.”
PINE64; Official Website; SOPINE; 08.04.2018
11
“CPU | H5 Quad-core Cortex-A53 – Memory (SDRAM) | 2GB DDR3 (shared with GPU)”
Orange Pi; Official Website; Orange Pi Prime; 08.04.2017
12
“Dimension (DxWxH): 220mm x 197mm x 63mm”
Chieftec; Official Website; IX-03B-OP; 08.04.2017
Updated Version
This article was originally published on 10th of April, 2018. In this update, I inserted the description of Edoardo’s case as well as a picture of it. If you want to read the original version of the article, you can find it here: Pine64 Skyminer