Recently, there have been many concerns around a lack of transparency within the crypto industry, especially in regards to crypto exchanges even causing a change of the CMC exchange listing and assessment policies. This is clearly a sign that the market is gradually taking steps toward maturity.
However, there is still a lot of work!
Therefore, we’re beginning a series of reviews to show CER users, crypto enthusiasts, and traders the vast capabilities of our platform. In other words, by posting such articles, we intend to teach crypto enthusiasts how to effectively use data from Crypto Exchange Ranks to get a trading advantage and make an appropriate, and most importantly, secure investment decision. As the first step, we’re going to review the recent changes in one of the most important scoring parameters that a crypto trader should use for analysis of a crypto exchange – the Liquidity Score.
So, let’s begin!
Liquidity Score (LS) is a rating of exchanges based on parameters characterizing their liquidity. It is comprised of six subtotals: spread, spread volatility, trade volume, trade volume volatility, book depth (orderbook volume) and book depth volatility. Each component is calculated by our elaborate proprietary formulas (algorithms).
The following table shows heat-mapped liquidity scores (from red – the lowest values, to green – the highest values) for all exchanges covered by CER on each day of the last week together with their corresponding trends.Table 2 pictures daily changes of LS for all exchanges over the week, as well as each venue’s LS volatility for the week.
As we can see from Table 1 and Table 2 some exchanges’ LS are more consistent, while others are more volatile. Higher level of liquidity and its stability makes trading less risky by reducing the risk of price slippage (the difference between the expected price of a trade and the price at which the trade is actually executed). Binance exchange has the least volatile LS over the week with standard deviation score of 0.28; this means it has the most stable liquidity among its peers. Korbit’s LS throughout the week scored a deviation of 0.89, making it the most unreliable exchange in terms of liquidity stability.
Despite the massive LS jump on July 21 for most exchanges, on average their liquidity declined by 6.3% on weekly basis. Cex.io experienced the greatest weekly liquidity deterioration by -25.35%, while the greatest liquidity improvement by 2.82% was on Exmo exchange.
TOP-3 Exchanges by LS
The following table shows LS’s and its components’ values for Top-3 exchanges of CER LS rank.Bithumb is #1 in LS rank with 6.83 points due to the best spread, spread volatility, and volume values, as well as solid book depth volatility value. HitBTC is in second place with 5.54 points as it falls behind the leader by spread (7.55 vs 10 points), spread volatility (4.34 vs 10 points) and volume (1.05 vs 7.85 points). Coinbase takes the third place with 5.49 points. While 4 out of 6 of its liquidity metrics are almost in line with HitBTC, it beats the competitor by spread volatility (6.61 vs 4.34 points) but lagging behind by spread (4.64 vs 7.55 points) is crucial.
As we can see from the chart figuring LS trends of TOP-3 Exchanges, Coinbase’s LS fluctuates insignificantly through the week, while Bithumb and HitBTC experience greater LS variation. This means that Coinbase has a more consistent liquidity (comparing to peers), making it more attractive for trading. In contrast, this higher volatility in liquidity of Bithumb and HitBTC makes trading with larger volumes on their platforms riskier.
BOTTOM-3 Exchanges by LS
The following table shows LS’s and its components’ values for Bottom-3 exchanges of CER LS rank.Exmo is the worst performer by LS with 3.61 points, due to weak values in 3 out of 6 LS components, below average volume (3.26 points) and average volume volatility (5.28 points). Like the LS #1 loser (anti-leader), Bittrex and Cex.io have weak values in 3 out of 6 LS scoring factors and average values in the other 3. That results in Bittrex scoring 3.64 points, taking 17th place and Cex.io taking the 16th place with 3.77 points.
The chart above demonstrates LS trends of the bottom-3 exchanges. Thus, we can see while Cex.io’s LS is fluctuating drastically, Exmo and Bittrex have smoother LS trends, spiking on July 21 due to Bitcoin’s $1000 price surge over 2 days. Although Exmo and Bittrex have the lowest liquidity among the peers, their values show more consistency over time making trading reasonably safer. In contrast, the higher volatility in liquidity of Cex.io suggests traders be more cautious while trading on the platform.
The liquidity Score by CER provides a complex valuation of crypto exchanges based on their liquidity metrics. It’s an extremely valuable measure, since the more sufficient and consistent liquidity an exchange has, the more enticing it is for high volume traders and investors. The reason is that they can buy or sell a large amount of a cryptocurrency without making a significant effect on its price. Mind that the market conditions can change anytime. Subscribe for the CER blog updates to stay informed on the latest liquidity alterations of the TOP crypto exchanges. Stay tuned!
Note: This is the first out of a number of articles analyzing market trends. To read related articles use the #digest hashtag.
Don’t hesitate to contact us via [email protected], if you have suggestions on how to make these reviews more interesting and effective.