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I applied price discovery algorithms to 5 Min OHLCV data from Bitmex and CME contracts and Bitstamp, Coinbase, HitBTC, Kraken, Poloniex, Binance, and OkEx BTCUSD/BTCUSDT markets from March 2016 to May 2020. Some exciting results I got was:
Before the 2017/18 bull run, Bitfinex dominated the price discovery process. They started the run. But as the price increased, trades on other exchanges, Binance and Bitstamp played a more dominant role in leading the price up.
Since then, CME Contracts and Bitmex contracts have had an increasing role in price discovery. Today Bitmex and CME Contracts play the most substantial role in determining the direction of Bitcoin price.
In 2020, market dominance by Bitmex has been negatively correlated with price. Dominance by Bitfinex, Huobi and OkCoin has had high positive correlation with price.
Price discovery is the overall process of setting the price of an asset. Price discovery algorithms identify the leader exchanges whose traders define the price. Two approaches are most famous for use in Price Discovery. Gonzalo and Granger (1995) and Hasbrouck (1995). But they assume random walk, and a common efficient price. I do not feel comfortable assuming random walk and common efficient price in Bitcoin Markets. So I used this little know method by De Blasis (2019) for this analysis. This work assumes that "the fastest price to reflect new information releases a price signal to the other slower price series." I thought this was valid in our market. It uses Markov Chains to measure Price Discovery. Without going into the mathematical details the summary steps used was:
Data is first grouped into a daily interval. Then inside each daily interval's 5-minute candles, the change in prices between the current time t and previous time t-1 is calculated. The difference across the same time t across all exchanges in a given day is juxtaposed to create an initial matrix.
The initial matrix is used to create a Transition Matrix, which measures the probability of price changing to something else at time t+1 for its state at t.
Then other Markov Chain based algorithms are used to measure the influence an exchange at time t had over all other exchanges' price movement at time t+1 individually.
Reduction and normalization is done to this data. In the end, each exchange receives a single number that sums to 1 for a given day.
De Blasis (2019) names this number Price Leadership Share (PLS). High PLS indicates a large role in price discovery. As the sum of the numbers is 1, they can be looked at as a percentage contribution. I recommend reading the original paper if you are interested to know more about the mathematical detail.
Andersen (2000) argues that 5 Minute window provides the best trade-off between getting enough data and avoiding noise. In one of the first work on Bitcoin's Price Discovery, Brandvold et al. 2015 had used 5M window. So I obtained 5M OHLCV data using the following sources:
Poloniex, Bitfinex, Binance and HitBTC: Exchange's API through CCXT.
CME: Okay, this was was supposed to be tricky and expensive. I broke a TOS and scraped the data for free, removing the expensive part from the equation. I will not go into detail about where I scraped this data.
Futures data are different from other data because multiple futures contract trades at the same time. I formed a single data from the multiple time series by selecting the nearest contract until it was three days from expiration. I used the next contract when the contract was three days from expiration. This approach was advocated by Booth et al ( 1999 )
I can't embed the chart on reddit so open this https://warproxxx.github.io/static/price_discovery.html In the figure above, each colored line shows the total influence the exchange had towards the discovery of Bitcoin Price on that day. Its axis is on the left. The black line shows a moving average of the bitcoin price at the close in Bitfinex for comparison. The chart was created by plotting the EMA of price and dominance with a smoothing factor of 0.1. This was done to eliminate the noise. Let's start looking from the beginning. We start with a slight Bitfinex dominance at the start. When the price starts going up, Bitfinex's influence does too. This was the time large Tether printing was attributed to the rise of price by many individuals. But Bitfinex's influence wanes down as the price starts rising (remember that the chart is an exponential moving average. Its a lagging indicator). Afterward, exchanges like Binance and Bitstamp increase their role, and there isn't any single leader in the run. So although Bitfinex may have been responsible for the initial pump trades on other exchanges were responsible for the later rally. CME contracts were added to our analysis in February 2018. Initially, they don't have much influence. On a similar work Alexandar and Heck (2019) noted that initially CBOE contracts had more influence. CBOE later delisted Bitcoin futures so I couldn't get that data. Overall, Bitmex and CME contracts have been averaging around 50% of the role in price discovery. To make the dominance clear, look at this chart where I add Bitmex Futures and Perp contract's dominance figure to create a single dominance index. There bitmex leads 936 of the total 1334 days (Bitfinex leads 298 days and coinbase and binance get 64 and 6 days). That is a lot. One possible reason for this might be Bitmex's low trading fee. Bitmex has a very generous -0.025% maker fee and price discovery tend to occur primarily in the market with smaller trading costs (Booth et al, 1999). It may also be because our market is mature. In mature markets, futures lead the price discovery.
Table 1: Days Lead
Out of 1334 days in the analysis, Bitmex futures leads the discovery in 571 days or nearly 43% of the duration. Bitfinex leads for 501 days. Bitfinex's high number is due to its extreme dominance in the early days.
Table 2: Correlation between the close price and Exchange's dominance index
Binance, Huobi, CME, and OkCoin had the most significant correlation with the close price. Bitmex, Coinbase, Bitfinex, and Bitstamp's dominance were negatively correlated. This was very interesting. To know more, I captured a yearwise correlation.
Table 3: Yearwise Correlation between the close price and Exchange's dominance index Price movement is pretty complicated. If one factor, like a dominant exchange, could explain it, everyone would be making money trading. With this disclaimer out of the way, let us try to make some conclusions. This year Bitfinex, Huobi, and OkEx, Tether based exchanges, discovery power have shown a high correlation with the close price. This means that when the traders there become successful, price rises. When the traders there are failing, Bitmex traders dominate and then the price is falling. I found this interesting as I have been seeing the OkEx whale who has been preceding price rises in this sub. I leave the interpretation of other past years to the reader.
My analysis does not include market data for other derivative exchanges like Huobi, OkEx, Binance, and Deribit. So, all future market's influence may be going to Bitmex. I did not add their data because they started having an impact recently. A more fair assessment may be to conclude this as the new power of derivative markets instead of attributing it as the power of Bitmex. But Bitmex has dominated futures volume most of the time (until recently). And they brought the concept of perpetual swaps.
There is a lot in this data. If you are making a trading algo think there is some edge here. Someday I will backtest some trading logic based on this data. Then I will have more info and might write more. But, this analysis was enough for to shift my focus from a Bitfinex based trading algorithm to a Bitmex based one. It has been giving me good results. If you have any good ideas that you want me to write about or discuss further please comment. If there is enough interest in this measurement, I can setup a live interface that provides the live value.
￼ ￼ Dogecoin surges to dizzying heights amid TikTok hype Oliver Knight July 9, 2020, 6:27 am Dogecoin, a longstanding staple of the cryptocurrency ecosystem, has been struck by a remarkably unexpected rally over the past 48-hours, with it now trading 82% higher against Bitcoin than it was two days ago. The meme-friendly digital asset, which was created as a joke in 2013, has emerged as a target for millions of TikTok users that claim it will rally all the way to $1. The #DOGE hashtag now has millions of posts on both TikTok and Twitter, with cryptocurrency exchanges responding by listing both futures and perpetual swap contracts of the cryptocurrency. This morning Binance revealed that as of tomorrow customers can trade Doge/USDT with up to 50x leverage. Bitfinex, meanwhile, announced that it will list MDOGE with a conversion rate of one million as it attempts to capitalise on the recent wave of hype. ￼ While a coin like Doge pumping unsustainably may seem like fun, investors should be wary about using leveraged products as it massively increases the risk of liquidation. To be clear, this is not financial advice but retail investors should be cautious about buying into an asset that has already made substantial gains on the back of a viral social media post, especially when Doge has been the recipient of a number of pump and dumps over the past two years. Looking at Dogecoin’s chart, the current level of 50 sats has been a historical point of support and resistance dating all the way back to 2015, which means price may be halted here unless another wave of volume comes in. For more news, guides and cryptocurrency analysis, click here. Update privacy choices
Chainlink Price explodes - Reasons for the increase in LINK Price
Chainlink (LINK) is currently the most popular Defi project. The LINK rate has almost doubled in the past 3 weeks and hit a new all-time high of $ 8.48. As a result, the market capitalization rose briefly to over $ 2.5 billion and placed LINK in 8th place at CoinMarketCap. Of course, many are wondering how such a sharp rise in share prices could occur. https://preview.redd.it/8c4avufatsa51.png?width=337&format=png&auto=webp&s=5fa98b24c647e46df8fd75333bb62071e7499fbb Therefore, today we take a closer look at the possible reasons for the strong LINK Pump. If you are looking for cryptocurrency exchange with zero spot trading fees and Leverage trading engines that are ten times faster as compared to other cryptocurrency exchanges, VisitPhemex Exchange Basically, there are currently three main factors that have led to the LINK price increase. This includes the human psychology of pricing, high-profile partnerships, and a generally strong dynamic in the altcoin market. In addition, the increasing trading volume may have fueled the LINK price increase.
Then on July 6th, the time had come. The LINK price exceeded its previous record high of $ 5.31 and entered the pricing phase. This phase leads to FOMO (Fear Of Missing Out) in most markets. The way up is clear and has no natural resistance that could be identified by technical chart analysis. Exactly this fact leads to the fact that many speculators get in and fear to miss something, are almost ready to pay any price. Therefore the current Chainlink price increase could be irrational and encounter a hard correction. Within the last seven days, after the old all-time high was broken, the price exploded by over 40%, rising from $ 5.31 to $ 8.48. The LINK price is currently around USD 7.76. The trading volume of LINK also rose to a level that has not been observed since April 2020. At that point, the bitcoins price recovered from its strong sell-off to around $ 3,750. During this period, the demand for cryptocurrencies from retail investors rose by leaps and bounds. Some analysts believe that the LINK price could rise to USD 10 in the next few weeks. However, this statement should be treated with caution.
Partnerships stimulate business
Over the course of this year, Chainlink has entered into many high-profile partnerships with companies in the crypto sector. Chainlink partnered with Nexo on July 8th. Nexo is a crypto credit company with around 800,000 users. Chainlink is to make its Oracle solutions available to the company. Chainlink co-founder Sergey Nazarov said: We are excited to bring Chainlink's secure and reliable Oracle solutions to Nexo's popular credit platform so users can independently check the interest rate and collateral rates they should receive on the blockchain. Over the past two months, Chainlink has partnered with blockchain projects and companies like Matic Network and Hedera Hashgraph. Chainlink was also mentioned in a Google blog post entitled Building hybrid blockchain/cloud applications with Ethereum and Google Cloud. LINK does not miss a partnership and therefore remains on everyone's lips. Feels like every major crypto company is already included as a partner. This attracts a lot of attention and thus increases interest in Chainlink.
Altcoin and Defi Momentum bring LINK up
The Altcoin market has shown its strong side in recent weeks. While the Bitcoin price was rather sideways, some altcoins have exploded. Chainlink is just the tip of the iceberg. Many other projects, especially from the Defi Space, were able to grow properly. DeFi is on everyone's lips and investors are looking for the next “insider tip” to quickly make a few 100%. The crypto market is becoming increasingly irrational and money is being thrown from one project to the next. It is strongly reminiscent of 2017 and 2018 at the ICO hype. The strong hype and greed can be felt and makes a timely correction more and more likely. Many are already talking about an Altcoin Season and are currently seeing LINK and many other Altcoin projects outperforming BTC. How long the situation lasts and whether further profits can be achieved with LINK is in the stars. But you should keep in mind that Chainlink has increased by over 450% in the last 3-4 months. This could lead to strong correction.
Ethereum, LINK, and Ren: These 3 altcoins are supposed to beat BTC
In the past two months, we have seen a significant decline in bitcoin dominance, While the value on May 15 was still 69.60%, it fell to around 62.60% by yesterday's Sunday. So that means that many altcoins perform better than BTC. However, in view of the more than 5000 altcoins, the question of which coins should now outperform Bitcoin naturally arises. The spectrum ranges from the well-known alts such as Ethereum to the new top performers like Chainlink. If you are looking for cryptocurrency exchange with zero spot trading fees and Leverage trading engines that are ten times faster as compared to other cryptocurrency exchanges, VisitPhemex Exchange In this article, let's take a look at an analysis by Santiment and see why they think Ethereum (ETH), Chainlink (LINK), and Ren (REN) could beat Bitcoin.
Santiment underlines the feeling of the Altcoin season
First of all, the Santiment report presented is about a so-called short-term outlook. This means that all statements refer to a short-term period. And for this short-term period, the analysis company now sees the altcoins ETH, Link, and REN at the forefront. The report begins with a brief summary of the situation. While the Bitcoin price is largely still in the price range of $ 9,000 - $ 9,500, many altcoins, in particular, have seen strong increases. Santiment sees the greatest potential here at Chainlink (LINK).
Chainlink as a winner in front of Ethereum and REN
In the report presented, Santiment uses 3 indicators to assess the short-term situation of the altcoins. Chainlink sees this in the first place. In addition to the positive indicators, the company also attests to the token based on the Ethereum Blockchain a bullish signal through the use in the context of China's National Blockchain Service Network (BSN). After this news was published on July 8, the LINK course saw strong growth. Let's take a quick look at the chart: https://preview.redd.it/azgvkypdosa51.png?width=1170&format=png&auto=webp&s=8045a983e858fa8d0551253064f7df6946492fc6 We can see from the 30-day chart that the price of Chainlink rose from around USD 4 to USD 6 at the beginning. This makes LINK one of the best performers of the past 30 days.
Ethereum and REN are further candidates
In addition, the company says that they see Ethereum and REN as additional candidates for outperformance. As already mentioned, 3 indicators were considered for this. Now let's take a look at the ones behind it. Then, of course, we also look at the values for the individual altcoins. NVT, DAA and Sentiment Volume Consumed as indicators The first indicator examined is the Network Value to Transactions Ratio (NVT). This is a metric that relates the volume of transactions divided by the number of coins/tokens in circulation to market capitalization. This is done over a period of time. In our case, that's the 3-day average. The second indicator is the daily active addresses in relation to price divergence. Simply put, the price dynamic is set in relation to the number of active addresses. You can find more information here. The third parameter is called Sentiment Volume Consumed. This is about the measured “sentiment” on Twitter. Now let's look at the ratings for Bitcoin, Ethereum, LINK, and REN. The company assigned a numerical value of 0-10 for each indicator, which varies between maximum bearish (0) and maximum bullish (10).
LINK before Ethereum, REN, and Bitcoin: the results
Let's start with the top dog Bitcoin. BTC received only a value of 2 for the indicator NVT. The DAA value was 5 and the value for Sentiment Volume Consumed was 6.5. This gives a total value of 4.5, which Santiment sees as a neutral rating. Ethereum itself receives 5 points for NVT, 8 points for DAA, and 7.5 for SVC. This results in a total value of 6.8. Santiment rates this as bullish. Ethereum got the second-best total after Chainlink. LINK itself received 9 points in the NVT area. 5.5 points were awarded for DAA and 7 points for SVC. This gives a value of 7.2. REN received 8 points in NVT, 7.5 in DAA, and only 3.5 in SVC. This gives a total value of 6.3, which is still bullish overall. Conclusion: Short-term outperformance possible Santiment's report shows that the 3 cryptocurrencies Ethereum, Chainlink, and Ren offer the short-term potential to outperform the top cryptocurrency Bitcoin. However, it is important to understand that these figures only give a short-term outlook and therefore do not constitute a long-term trading recommendation.
Huge update to Cryptophyl - the SLP token exchange
Hi there, We've just released a big update to cryptophyl.com. The complete overhaul includes the addition of new features, a mobile-friendly trading interface and many design improvements. On top of this, we've just seen our biggest month yet of SLP token trading: almost $1M USD over April. What's new? Dark theme – We’ve introduced a dark theme which recolours the exchange interface so you can trade indoors without worrying about your eyes. The most requested feature we’ve had, you asked, and we delivered. Charts – We've added OHLC candle charts to the exchange so you can view price and volume data of all token trading since Cryptophyl launched last August. You can toggle between different periods and set the candle interval. Mobile friendly trading – We’ve revamped the mobile and desktop trading experience to a modern and responsive web application so you can trade comfortably on the move. Design improvements – We've refreshed the Cryptophyl logo, colours and typography, as well as redesigning the interface to maximise screen size, to provide a fresh user experience. Data availability – We've collected the most important trading and price information and have made it readily available from the dashboard – the core of the product. You can start trading, depositing and withdrawing with just a single click from here. API Keys – You can now generate API keys for programmatic trading directly on the platform. With lucrative arbitrage and market making opportunities existing in this nascent market, there is no better time than now to get started (view API documentation or create API Keys). Record trading volume In April we saw $900,000 USD worth of tokens traded over the month. The biggest markets were:
HonestCoin (USDH) - regulatory compliant 1:1 Backed USD stablecoin built on Bitcoin Cash = fast, cheap and stable border-less payments. We offer both BCH and BTC pairs. (Great explainer video why it's a nice alternative to USDT https://www.youtube.com/watch?v=bEiO3mwDwPQ)
Drop Token (DROP) - Cryptophyl's native exchange token which you can earn just for trading and gives you perks and features on the exchange.
Spice Token (SPICE) - a fun appreciation token used for tipping on social media, one of the first and most adopted SLP tokens.
What are SLP tokens? SLP is an emerging standard for issuing tokens on Bitcoin Cash. This means any token transactions are as scalable, fast and cheap as Bitcoin Cash . You can learn more about SLP tokens and how to quickly create your own token here: http://simpleledger.cash/ What's next for us? We're working to release Detoken - a trustless token exchange which allows you to buy, sell and trade tokens whilst always being in control of your private key! This means there is no centralised point of failure and you never have to trust us with your coins and tokens. The exchange will be open source. We're making it easy for wallets such as bitcoin.com to integrate Detoken into their product flow and we think it's going to be huge for the SLP token ecosystem! Thanks, Semyon, Founder and CEO, Cryptophyl.com
﷽ The Federal Reserve and the United States government are pumping extreme amounts of money into the economy, already totaling over $484 billion. They are doing so because it already had a goal to inflate the United States Dollar (USD) so that the market can continue to all-time highs. It has always had this goal. They do not care how much inflation goes up by now as we are going into a depression with the potential to totally crash the US economy forever. They believe the only way to save the market from going to zero or negative values is to inflate it so much that it cannot possibly crash that low. Even if the market does not dip that low, inflation serves the interest of powerful people. The impending crash of the stock market has ramifications for Bitcoin, as, though there is no direct ongoing-correlation between the two, major movements in traditional markets will necessarily affect Bitcoin. According to the Blockchain Center’s Cryptocurrency Correlation Tool, Bitcoin is not correlated with the stock market. However, when major market movements occur, they send ripples throughout the financial ecosystem which necessary affect even ordinarily uncorrelated assets. Therefore, Bitcoin will reach X price on X date after crashing to a price of X by X date.
Stock Market Crash
The Federal Reserve has caused some serious consternation with their release of ridiculous amounts of money in an attempt to buoy the economy. At face value, it does not seem to have any rationale or logic behind it other than keeping the economy afloat long enough for individuals to profit financially and politically. However, there is an underlying basis to what is going on which is important to understand in order to profit financially. All markets are functionally price probing systems. They constantly undergo a price-discovery process. In a fiat system, money is an illusory and a fundamentally synthetic instrument with no intrinsic value – similar to Bitcoin. The primary difference between Bitcoin is the underlying technology which provides a slew of benefits that fiat does not. Fiat, however, has an advantage in being able to have the support of powerful nation-states which can use their might to insure the currency’s prosperity. Traditional stock markets are composed of indices (pl. of index). Indices are non-trading market instruments which are essentially summaries of business values which comprise them. They are continuously recalculated throughout a trading day, and sometimes reflected through tradable instruments