In the last few years both experienced traders and ordinary people, looking to make their savings work for them, have beaten a path to the cryptocurrency market. There are a lot of different lenses through which you can evaluate crypto exchanges, but something that everyone agrees on is that liquidity is essential. If you are a crypto pro, you probably know everything about liquidity already and you can skip the following explanation and go on reading about crypto exchange liquidity down below. But if you are a rookie in the world of cryptocurrencies and/or you like donuts, be sure to read on.
So what is liquidity? Let’s use donuts to try and explain liquidity in as simple a way as possible.
Imagine we live in a more perfect world that, instead of operating on cash and cruelty, runs on donuts. So instead of currency we have donuts. Now, there are many different kinds of donuts out there, almost as many as there are people. But some donuts are more popular and more used than others. Glazed, for example. Everybody loves a good, glazed donut. Jelly donuts are popular too, but not as popular as the gold standard glazed donut. Jelly donuts are much more en vogue than licorice donuts and their brethren, however, which appeal to different, small niches of people.
In this world, these donuts are assets or things of value that you can exchange for other things of value. Because everybody loves good, glazed donuts and almost everyone has them and uses them, everyone knows the value of the glazed donut. The glazed donut can be exchanged easily for an understood value that won’t change if someone starts acquiring them or dumping them in bulk. Jelly donuts are less understood; many people have them, but if there were groups of people getting rid of them it might significantly affect the value of the donuts themselves. And licorice donuts are pretty much complete wildcards; you never know what you’re going to get with them.
This, as convoluted as it may be, in some ways, reflects the complex idea of asset liquidity. If we are considering the liquidity of these donuts, it goes as follows:
- Glazed donuts are very liquid.
- Jelly donuts are less liquid, but still moderately liquid.
- Licorice donuts have low liquidity.
Now if we take our donut-insight into the world of cryptocurrencies we will find that similar laws exist. Cryptocurrencies also have varying degrees of liquidity:
- Bitcoin, the glazed donut of the crypto sphere, enjoys high liquidity.
- First-tier altcoins like ETH have moderate liquidity. Just like jelly donuts.
- Niche and lesser known altcoins have low liquidity like licorice donuts.
Liquidity describes the degree to which a cryptocurrency can be quickly bought or sold in the market without affecting its price.
A crypto coin with low liquidity is not in demand. The number of purchase and sale bids is small, so often a bidder will be unable to find their required volume of crypto at a price suitable to them. In general, trading low liquid cryptos is riskier than trading BTC. The sphere attracts professional traders who know how to trade correctly, what nuances to pay attention to and how to turn high risk into profit.
“Liquidity” is actually a combination of several factors: 24 trading volume, order book depth changes and distance from mid-price (the bid/ask spread). Calculations are made by polling the market pair at random intervals over 24 hours and averaging the result.
Top 5 Crypto Exchanges by Liquidity
To sum it up so far, crypto exchange liquidity is the ability to buy or sell cryptocurrency on an exchange without loss in time or loss in value and without changing the price of the crypto asset. The bottom line here is that a market participant can get their desired amount of crypto at the best value as quickly as possible at a high liquidity exchange. Cryptocurrency, as it transitions into more of an established industry is inextricably tied to the health of its exchanges. A healthy exchange is a liquid exchange, and a liquid market is a market that welcomes newcomers and is ready to expand.
With that in mind, let’s take a look at the top 5 cryptocurrency exchanges by liquidity. For convenience, they are placed in numerical sequence. We have reviewed all the information and summarised the main points so that readers can weigh all the pluses and minuses and find the option most favorable to them.
HitBTC ranks first among all exchanges by liquidity, which has done much to bring users into the exchange and increase its credibility. Its brand positioning is that it is a sophisticated platform that is easy to use. The website states it was founded in 2013 ”by experienced system architects and technology experts” and that their “top-tier security custody is based on HDKey technology and multilevel in-house cryptography.” Sure enough, HitBTC has a strict policy against third-party software, so it is fair to say their blockchain solutions are one-of-a-kind. This exchange has unparalleled security —it has never been hacked — a big edge in the crypto market. Along with that, HitBTC was the first to present FIX API, REST and WebSocket, fast and advanced APIs for algorithmic and automatic trading. Active traders enjoy lower trading fees due to the Fee Tier system in place, and users have also provided positive feedback about the number of exchange pairs and the fact that new coins keep appearing on HitBTC’s roster.
Nevertheless, there are a few sticky issues about HitBTC. Users might feel uncomfortable because the exchange sometimes delists coins immediately reacting to market changes. The status of any coin can be checked at the System Monitor page. But, obviously, not every trader wants to be constantly consulting the list while they are going about their business. Among the other complaints were high withdrawal fees for a small number of tokens. It is worth mentioning that HitBTC fees are flat, meaning no matter how many coins a user wants to withdraw, the fee won’t change.
Founded in 2012, Bitfinex is also known as one of the oldest exchanges in the market. It is quite famous among traders for its indicators of BTC shorts and longs. Fiat trading is another big win in the plus column. But, despite the obvious benefits of this established online broker, it has seen its fair share of rainy days.
The crypto space will hardly forget about the hacker attacks that Bitfinex has suffered, and it has yet to pay back the losses. Hopefully, it has worked out the kinks since 2016. But the memories of its major security breaches remain. The exchange used to require traders to have a minimum of $10K in account equity. While that has changed, the exchange still attracts big players with large sums in hand. Another turnoff is the long registration process (up to two months). That’s not to mention random accusations of market manipulation and insolvency.
Binance was launched after a successful ICO in 2017. It boasts impressive trading volume that has proven to be genuine and raised without manipulating the numbers. Nevertheless, the London-based crypto data provider CryptoCompare hasn’t included the famous exchange in its top 10 as it doesn’t rely on aggregate volume data in its analysis. Binance is often praised for its UX, smooth workflows and for the way it redesigned its interface to enable more users to try it. The platform features a number of trading incentives and a tremendous amount of maintained assets that the crypto broker is free to choose from. And of course, the BNB token along with trading competitions and promotions. It is with this in mind that Binance is often called “the trader’s exchange of choice”. However, like all the exchanges on this list (and in this space) Binance has had some downs.
For a start, Binance recently introduced margin trading that is far from being intuitive. Also, for all its professed multifunctionality and usability, lending crypto hasn’t been implemented, the funding mechanisms are quite difficult to understand, and the support documentation is insufficient. Just as important, Binance has frequently performed unplanned maintenance, notifying the audience post factum. It is obvious that the exchange is striving to grow its functionality, but it is experiencing some growing pains in doing so.
Singapore-based Huobi mostly caters to the Asian market. It is a brainchild of the financial services group Huobi Global that also owns HADAX, the Huobi Autonomous Digital Asset Exchange. Huobi invented its own stablecoin backed by the US dollar, HUSD, and its own HT utility token that it promotes with the help of voting, competitions and fee discounts. The exchange has been in the market since 2013, so it has adapted itself to global trends. It is usually praised for its wide range of cryptos, number of trading pairs and sleek UX. Nevertheless, there are a number of disadvantages on the exchange that have led some users to abandon ship.
First and foremost are the presentations of some website sections that some English speakers might find confusing and distracting. Also, customer support seems to be not very effective sometimes. Rumour has it that Huobi could have got its high ranking and inflated volume numbers due to wash trading (also known as round trip trading). Apparently, this information hasn’t been documented but this opinion is quite strong on the web. Safety issues are the sting in the tail. The exchange doesn’t track IP locations so someone else can try to log-in to your account. Also, users can’t whitelist withdrawal addresses which means funds can be sent to any address input.
This Chinese-oriented exchange is a bit atypical for the western world. Though the interface might look odd to most users, ZB.com nonetheless occupies fifth in the liquidity standings. Some put it down to its success in the Asian market, some suspect the exchange of wash trading. Also, it has a good Telegram channel, and Twitter and is actively present in Chinese mass media. But, to tell the truth, high liquidity and a strong community are probably the only positive indicators for ZB.com. Its performance, features and trust indicators on Coinintelligence have it rated less than 4/10. And, predictably, there is a ton of negative feedback. It might seem strange as the exchange has many interesting features like sport trading, margin trading, loans and borrows. But it’s here, apparently, that the trouble lies.
As ZB.com doesn’t target the western audience the website has many incomprehensible sections with no proper explanations or tutorials. Some texts haven’t been translated from Chinese, which is inconvenient for English speakers. The registration process is tedious and it can take days and days. Besides, customer support is said to be not very helpful. When users finally manage to register they notice that some trading interfaces are missing price charts. But lack of safety is probably the biggest red flag here. It turns out ZB.com doesn’t use such security features as address withdrawal whitelisting and doesn’t provide cold storage, keeping user funds online all the time.
Takeaway (Liquidity and Donuts)
Evaluating liquidity is part and parcel when it comes to choosing a crypto exchange. Users like liquid markets as much as we all like glazed donuts. And this is not surprising. Who wouldn’t like it when the coin they trade sells like hot cakes? Naturally, liquidity is the deal maker for the majority of traders, and now you know why. This is what you want to look for if you want to find an exchange where you can buy or sell cryptocurrency in a fast and cost-efficient way.
It is also important to pay due consideration to the reputation of the exchange, the technologies that it uses and its attitude toward the safety of funds. Not all crypto brokers have managed to win the respect of users. We ask our readers to weigh the pros and cons before making a decision. Trade on liquid exchanges and treat yourself to some delicious donuts!