News about Empirica, algorithmic trading and software development.

Independent initiatives that analyze crypto exchanges liquidity and quality

Volume is flawed metric of crypto exchanges liquidity. Because of wash trading practices of many crypto exchanges as well as token issuers, using trading volume as a basis of comparison is misleading. Many exchanges have problems attracting professional market makers and are trying to make shortcuts on the way to attract retail investors. Moreover attracting professional investors requires investments in crypto exchanges system development with stable and performant APIs so they could connect their algorithmic trading systems.]

There are more and more independent initiatives that are taking a closer look at what constitutes a high quality crypto exchange. Three major ones are Blockchain Transparency Institute, CryptoCompare Benchmark and Cointelligence Report. I also take a quick look at the Bitwise report for SEC from March 2019.

 

Read more about our tool for measuring crypto exchange quality – Liquidity Analytics Dashboard

 

Blockchain Transparency Institute

BTI concentrates on analyzing crypto exchanges data feeds to spot wash trading mechanisms and provide the real volume metric which is cleaned out of suspicious activities.

BTI identified 17 of the CoinMarketCap Top 25 crypto exchanges to be over 99% wash traded. This one number alone shows the magnitude of the problem, as well as how volume is a false measure.

According to BTI Report crypto exchanges which are faking their volumes use a variety of different tactics to try and swindle investors. These tactics include buying twitter followers and likes, filling up fake order books, mirror wash trading the largest exchanges with real volume, and trying to disguise their wash trading using various bot settings to not affect price. On many of these exchanges trading high volumes closing the spread would make the volume plummet as the trading bots had no room to wash trade with themselves. Welcome to the wild wild west of no regulation and surveillance.

BTI finds that “all crypto exchanges combined are currently reporting around $50 Billion in daily volume on CMC. After removing all the wash traded volume via our algorithms the accurate number is around $4-5 Billion. About 88-92% of daily trading volume is fabricated depending on the day. Bitcoin’s daily trading volume is about 92% fabricated, which is in line with the space as a whole when comparing our findings to top data sites reporting wash traded volumes.” 

And further “On our list of the top 40 largest exchanges with actual volume, Bitcoin’s volume is about 65% fabricated. Almost all of this fabricated volume comes from OKEx, Bibox, HitBTC, and Huobi. Of the top 25 tokens by market cap, Tron and Ethereum Classic are the highest wash traded tokens on our list at 85% fake volume each and coming in at #24 and #25 of the most wash traded tokens.”

Top 10 cryptocurrency exchanges according to real (not wash traded) volume by BTI

  1. Binance 
  2. Kucoin
  3. Liquid
  4. Huobi
  5. Coinbase
  6. OKEx
  7. Bitfinex
  8. Upbit
  9. Kraken
  10. Bitstamp

CryptoCompare

CryptoCompare’s Exchange Ranking methodology utilises a combination of 34 qualitative and quantitative metrics to assign a grade to over 100 active crypto exchanges. Metrics were categorised into several buckets ensuring that no one metric overly influences the overall exchange ranking. Each crypto exchange grade is derived from a broad due diligence check using qualitative data, followed by a market quality analysis that uses a combination of order book and transactional data.

Due diligence check comprises of 6 main categories that attempt to qualitatively rate each exchange on the basis of:

  • Geography
  • Legal and regulatory metrics
  • Calibre of investment
  • Team and company quality
  • Quality of data provision
  • Trade surveillance

Although at Empirica we believe in numbers, I like the qualitative approach, as it’s also possible to prove a correlation of metric like number of employees and business size of the exchange, therefore proving this way it’s quality. 

Another important factor is Market Quality. Crypto compare measures the market quality of each exchange using a combination of 5 metrics (derived from trade and order book data) that aim to measure the:

  • Cost to trade, 
  • Liquidity, 
  • Market stability, 
  • Behaviour towards sentiment
  • “Natural” trading behaviour

Exchanges were rated based on a combination of 9 of the most liquid BTC and ETH markets.

It’s worth taking a closer look how CryptoCompare report approaches Spread and Liquidity metrics:

“Generally, those exchanges which offer incentives to provide liquidity through either low or negative maker fees will achieve the tightest spreads. Due to the spread being calculated using the best bid and offer, it is misleading to use it as a sole gauge of liquidity and therefore as the market cost to trade; it must be used in conjunction with a depth

measurement to find the likely transaction price for any given size of transaction.”

 

Good point. And liquidity:

“Market depth is the total volume of orders in the order book. It provides an idea of how much it is possible to trade on crypto exchange, and how much the price is likely to move if large amounts are traded. An exchange with greater average depth is likely to be more stable (i.e flash crashes are much less likely) and allows trading of greater amounts at better prices.

We consider the depth up to 1% either side of the mid price. 

Depth = E(depthUp+depthDown)/2

Where depthUp is the total volume that would be required to move the price by 1% upwards from the mid price, and

depthDown is the total volume that would be required to move the price by 1% downwards from the mid price.”

 

Top 10 crypto exchanges according CryptoCompare quality benchmark:

  1. Coinbase 
  2. Poloniex 
  3. Bitstamp 
  4. bitFlyer 
  5. Liquid
  6.  itBit 
  7. Kraken 
  8. Binance 
  9. Gemini 
  10. Bithumb 

 

Cointelligence Rating System

Cointelligence is the most qualitative rating of crypto exchanges from the above. The methodology of the team was to manaully open accounts on all analyzed crypto exchanges and check from the user perspective the core aspects of beeing an exchange customer. The aspects cover:

Usability – covers KYC process, the quality of exchange website, extent of features and how easy it is to get a human answer from support staff. 

Performance – functionalities and historical robustness of exchange matching engine, fees height, trading instruments like futures contracts and margin trading.

Team – analysis of the available information about management team behind the crypto exchange, especially business and technical experience of C-level staff, including person responsible for exchange’s security

Risk – information on past hacks, insurance status, account security layers but also regulatory status of cryptocurrency exchange. Based on the geographical location of the exchange headquarters and registration any potential run-ins with the local law or any sign of authorities involvement.

 

This way Contelligence analyzed 85 crypto exchanges, but only 15 is rated with good quality mark, lead by Liquid and Gemini. 

Top 10 cryptocurrency exchanges by Cointelligence by qualitative criteria 

  1. Liquid (Quoine)
  2. Gemini
  3. Binance
  4. Bitstamp
  5. Gibraltar Blockchain Exchange
  6. OKEx
  7. Bittrex
  8. itBit
  9. Kraken
  10. ABCC

Bitwise report for SEC

Bitwise analysis is based on detecting wash trading patterns in public marked data published by crypto exchanges. Out of 81 exchanges they have analyzed in March 2019 only 10 were identified as be free of wash trading practices. These exchanges are:

  1. Binance
  2. Bitfinex
  3. Kraken
  4. Bitstamp
  5. Coinbase
  6. bitFlyer
  7. Gemini
  8. itBit
  9. Bitrex
  10. Poloniex

Bitwise identified that only 4,5% (about $275M daily) of officially reported volume (eg by the public sources like coinmarketcap) is the actual volume. The rest is wash traded.

The Bitcoin market is more orderly and efficient than is commonly understood. The 10 exchanges trade as a uniform, highly connected market. They form a singular price. Average deviations from the aggregate price for the ten exchanges is well within the expected arbitrage band when you account for exchange-level fees (~30 basis points), volatility and hedging costs. Arbitrage is operating well. Sustained deviations (defined as deviations >1% that last more than 100 seconds) appear as single white lines on the graph below. The graph demonstrates that the ten exchanges trade at a single unified price.

So although the message about the amount of wash traded volume is alarming, the report shows that the real crypto market is quite concentrated, ordered, efficient and well performing. The rest is just noise.

 

 

Read more about our tool for measuring crypto exchange quality – Liquidity Analytics Dashboard

 

Schedule your appointment right now to learn more

Blockchain meetup sponsored by Empirica, Wroclaw

Monday June 19th a beautiful sunny day in IT-friendly Wroclaw, tech start-ups and cryptocurrency enthusiast gather together at IT corner Tech meetup, sponsored by Empirica.

The event was planned to focus on key areas of current trends in Blockchain and Ethereum.

The event began with Mr Wojciech Rokosz, Ardeo CEO presentation. The session was dedicated to introduction to the economics of token. Explaining the new changes and updates we are and we will face in our economy with this huge entrance of virtual currencies.

The event later carried on with Mr Marek Kotewicz on introduction to Blockchain, Bitcoin and Ethereum. The session was summarizing the differences between Bitcoin and Ethereum.

The third and last part of the event was conducted with Mr Tomek Drwga, Blockchain meetup organizer,  diving deeper into smart contracts and programming ( introduction to Solidity) for Ethereum.

The event ended with open discussion between the audience and speakers, and visitors were served with beverages.

Empirica is a Wrocław-based company that supports many local IT initiatives. Empirica is offering solutions such as an Algo Trading Software implemented by major institutional investors in Poland, market makers software, wealth management system framework, cryptocurrency trading bots and trading software development services for companies from capital and cryptocurrency markets.

 

 

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The WEALTHTECH Book: The FinTech Handbook for Investors, Entrepreneurs and Finance Visionaries

CEO at Empirica S.A. was a Co-Author of The WealthTech Book published in March 2018 by Wiley. He wrote a brilliant article on Robo-Advisors, which was placed in Chapter 67 – link to the release below ↓ https://lnkd.in/dUmfPt4

 

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New York Intensive Business Journey | Consensus 2019

During our last visit to New York, we held multiple business meetings with our partners and potential clients, which led to kick-start some new, exciting algo trading projects.

We had been spreading the word about our flagship products – Algorithmic Trading Engine, Liquidity Engine and the newborn baby – Liquidity Analytics Dashboard for crypto markets. Making use of every spare hour, we participated in different industry events connected with crypto trading and blockchain.

You might have met Empirica’s Vice-President and Co-Funder Piotr Stawiński on conferences and meetups such as NYC Crypto Mondays, various Blockchain Week events or Consensus 2019.

Empirica is a Poland based company that supports many local IT initiatives. Empirica is offering solutions such as an Algo Trading Software implemented by major institutional investors in Poland, market makers software, wealth management system framework, best cryptocurrency trading bots and trading software development services for companies from capital and cryptocurrency markets.

 

 

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Hummingbot

Hummingbot short review 2019

Hummingbot is a software client that allows users to create and customize automated, algorithmic trading bots for making markets on both centralized and decentralized crypto asset exchanges.

Hummingbot was launched to the public on April 04, 2019. Its main features include a command line-based user interface, trading strategy configuration and trade execution. 

Functionality HummingBot
Installation Self-driven with Docker images. Needs to know Docker if one wants to use a server. No Docker support in case of problems. 
User Experience – GUI All done from config files and a command line. No straightway to visualise the current strategy output. More than one instance hard to manage. 
User Experience – Parameters modification Modification of the strategy’s parameters requires a restart of the strategy.
Reference price  A midpoint. 
Inventory management Automatic size adjustments, manual pricing adjustments. 
Risk management No parameters related to risk management. 
Performance – Technology behind Written in Python, scripting programming language (one of the slowest)
Performance – Price validation Time interval based orders price validation
Connectors Centralised:  Binance, Coinbase, Huobi Global, Bittrex International.

Decentralised: DDEX, IDEX, Radar Relay, 0x Relayers

Summary Humming Bot is set for individuals acting as market-makers on illiquid markets. 

 

Vendor website: hummingbot.io

 

 

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Bitcoin and Arbitrage: hand in hand

Empirica presented ‘ways of implementing Robo-Advisors’ at Fintech Trends

On behalf of Empirica, Hanif Nezhad talked about the different ways Robo Advisors could be implemented and the lessons we have learnt from firms which have digitalized their wealth management operations

He used our Robo-Advisory platform to showcase the different ways possible to apply Robo-Advisors. Although the list of choices firms may have before going Robo is long, he used the major options available, such as model portfolio vs discretionary portfolio management, different ways to perform rebalancing and Empirica’s recommendation engine.

At the end of his presentation he showed how at Empirica we can improve advisor-customer relationship using our built-in house machine learning algorithm for Robo-Advisors.

The event was followed with a panel session where the three speakers discussed variety of topic related to Robo-Advisors such as differences among Robo-Advisors, the Robo-Advisor business in Europe and Poland. The panelists also talked about ETFs and why Robo-Advisors are a big fan of them. After the panel audiences could approach the speakers and ask their questions. The event was concluded with networking session.

Empirica was a proud sponsor of the event.

Empirica is a Wrocław-based company that supports many local IT initiatives. Empirica is offering solutions such as an Quant Trading Software implemented by major institutional investors in Poland, market making software, portfolio management system framework, crypto trading bots and trading software development for companies from capital and cryptocurrency markets.

 

 

 

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Empirica will take part in Robo-Advisors – Open Mic Night run by Fintech Trends

On behalf of Empirica, Hanif Nezhad will talk about the different ways Robo Advisors can be implemented and the lessons we have learnt from firms which have digitalized their wealth management operations.

We are also a proud sponsor of the event, so make sure you come and visit us there.

Organizations will be provided free entry, but in order to make sure you will have a seat – register here.

 

About us

Empirica is a Wrocław-based company that supports many local IT initiatives. Empirica is offering solutions such as Automated Cryptocurrency Trading Software implemented by major institutional investors in Poland, market making software, portfolio management system framework, crypto trading bots and trading software development for companies from capital and cryptocurrency markets.

 

 

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Algorithmic Crypto Trading: market specifics and strategy development | Marek Koza, Product Owner @ Empirica S.A.

Empirica’s employees are industry’s experts with perennial experience gained during multiple complex projects executed for our clients. Our Product Owner Marek Koza wrote an article for FXAlgo News about differences between traditional and crypto markets and took a closer look at a few algorithmic strategies that are currently effective in the crypto space.

Link to the article: https://lnkd.in/dFQayjR

About us

Empirica is a Wrocław-based company that supports many local IT initiatives. Empirica is offering solutions such as Automated Trading Software implemented by major institutional investors in Poland, market making bot, portfolio management system framework, crypto trading bots and trading software development for companies from capital and cryptocurrency markets.

 

 

Schedule your appointment right now to learn more