Getting in and out of a large bitcoin trade on cryptocurrency exchanges like Binance or BitMEX isn’t costing as much as it used to. That might be a healthy sign that digital-asset markets are maturing.
At Binance, the world’s biggest cryptocurrency exchange by trading volume, the daily average spread between buy and sell orders on bitcoin futures for $10 million quote size declined to a record low of 0.25% on Monday, according to data provided by research firm Skew. The spread, which typically narrows as an exchange’s order book depth increases, spiked to 7.95% during the March crash but dropped shortly after. It has been in a declining trend ever since.
The so-called bid/offer spread is the difference between the best available price to sell or buy something in a market. It essentially represents liquidity – the degree to which an asset can be quickly bought or sold on a marketplace at stable prices.
A narrower spread implies a deeper market where there is sufficient volume of open orders so buyers and sellers can execute a trade without causing a big change in the price. That’s in contrast to a weak liquidity environment, where large orders tend to move the price, increasing the cost of executing trades, and deterring traders – especially institutions – and, in turn, causing a further decline in liquidity.
Binance and BitMEX offering record low spread on a $10 million quote is a healthy market development, according to Denis Vinokourov, head of research at London-based crypto prime broker Bequant.
“The tighter the spread, the deeper the order book, the more the market is able to withstand shocks [price volatility],” Vinokourov told CoinDesk in a Telegram chat.
BitMEX and Binance aren’t alone as other exchanges have also witnessed a steady drop in spreads over the past five months.
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