Liquidity problem with cryptocurrency trading
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Cryptocurrencies can be bought or traded on many cryptocurrency purchasing and trading platforms. While major cryptocurrencies (found on all purchasing platforms) do not seriously lack liquidity, the same cannot be said for altcoins. Depending on the platform, trading cryptocurrencies may prove more complicated than expected.
The cryptocurrencies market is an OTC market, and so cryptocurrency trading platforms do not necessarily offer trading for all cryptocurrencies.
As a result, traders are generally obliged to open an account with several cryptocurrency trading platforms so as to trade all the digital assets that interest them.
This consequence has a knock on effect: the liquidity that a trader generates is therefore dispersed over several trading platforms. Where a trader could have generated a volume of 100 on one and the same trading platform, in the end he only generates 30 if he speculates on cryptocurrencies via 3 different trading platforms.
To give you an example, let's look at where the volumes of Bitcoin are made:
I have not shown you the complete picture, because there would be more than 400 trades to list to share the total volume of Bitcoin trades.
You should understand that traders would do well (for better liquidity and spread) to group on common trading platforms, rather than spreading themselves around.
Some cryptocurrencies are only tradable on very small trading platforms, platforms where the number of customers can be counted on the fingers of one hand. Platforms where cryptocurrency spreads will shock more than one person.
Let's start with an example: I want to broker Bitcoin against NEO; two major cryptocurrencies! I'm not starting with an extreme example, such as a new crypto coming out of ICO or a cryptocurrency from the bottom of the table. No no. I'm trying to make this BTC/NEO trade on the allcoin platform:
To start with: an exchange volume over 24 hours of only 46 NEO, or €4,600.
Transaction history: 4 transactions before yesterday, 12 yesterday. I captured them for you in this screen print:
And let's look at the order book:
The best bid has been fixed by a trader at 0.010453 BTC for 1.35 NEO (about US$135).
The best ask has been set by a trader at 0.012749 BTC for 0.127 NEO (about US$12.7).
The spread to trade Bitcoin for Neo (or vice versa) is 22%. It hurts.
But that isn’t the worst! The major problem is that there is nobody to make the deal with; imagine you want to trade 500 NEO on this trading platform. Even the purchase request at 0.001570 (the last one displayed on the order book) would be executed.
Conclusion on these trading platforms: they should be banned. It is impossible to do anything in these market conditions.
The TOP cryptocurrency trading platforms offer "certain" liquidity thanks to their large number of customers; but this is only true for trading Bitcoin and a few major cryptocurrencies.
As soon as the amounts become a little too large, we find ourselves "doing the market" on certain cryptocurrencies. Try to sell €10,000 of an altcoin at market price. Good luck! Even if you make the lowest ask in the order book, there are still a few "small" cryptocurrency traders who will then position their sales order to a Satoshi below your price. And so on. Ultimately, simply by positioning a "large" order (not executed), the price collapses.
Another solution: sell at the best bid offered? Certainly. But the amounts still have to follow.
The only solution I have found for reselling a cryptocurrency on a major trading platform is to resell it in "small packages". I fix the best "ask" and sell to the best "bid". Then I wait. The order book refills and I start again. You just have to take it easy so as not to collapse the price.
The best solution: sell in the middle of a bullish rally, when buyers aren’t hustling to buy; although in those conditions you would hardly want to sell. ;)
This is a question that has already been addressed here: best platform to trade cryptocurrencies
Ibought an altcoin on a trading platform that doesn’t display volumes, now what?
This is a classic case of a cryptocurrency coming out of an ICO and launching its first market rating on a little known trading platform. There is no one to buy it. Only ICO participants who hope to resell their tokens at the best price (X10 if possible).
In this situation, it is best to keep your altcoins until they are listed on another trading platform. You will be able to sell them at a better price thanks to a higher trading volume and a better spread. Opening on a new exchange is also opening up to new trader clients who did not previously have access to purchasing this cryptocurrency. Traders who only have the possibility to buy (because they did not buy on the other exchange), make the price increase.
Good to know: it is not uncommon to see cryptocurrencies soar by 20% to 50% once they are integrated on major trading platforms. Some cryptocurrency traders do just that: watch out for new cryptocurrencies listed by these trading platforms to buy them immediately and take advantage of this increase.
If you have any questions regarding cryptocurrency trading volumes, do not hesitate to ask. I'll give you my insights on the subject.
A trader = Several cryptocurrency trading platforms = Decrease in liquidity
The cryptocurrencies market is an OTC market, and so cryptocurrency trading platforms do not necessarily offer trading for all cryptocurrencies.
As a result, traders are generally obliged to open an account with several cryptocurrency trading platforms so as to trade all the digital assets that interest them.
This consequence has a knock on effect: the liquidity that a trader generates is therefore dispersed over several trading platforms. Where a trader could have generated a volume of 100 on one and the same trading platform, in the end he only generates 30 if he speculates on cryptocurrencies via 3 different trading platforms.
To give you an example, let's look at where the volumes of Bitcoin are made:
I have not shown you the complete picture, because there would be more than 400 trades to list to share the total volume of Bitcoin trades.
You should understand that traders would do well (for better liquidity and spread) to group on common trading platforms, rather than spreading themselves around.
The "too" small cryptocurrency trading platforms
Some cryptocurrencies are only tradable on very small trading platforms, platforms where the number of customers can be counted on the fingers of one hand. Platforms where cryptocurrency spreads will shock more than one person.
Let's start with an example: I want to broker Bitcoin against NEO; two major cryptocurrencies! I'm not starting with an extreme example, such as a new crypto coming out of ICO or a cryptocurrency from the bottom of the table. No no. I'm trying to make this BTC/NEO trade on the allcoin platform:
To start with: an exchange volume over 24 hours of only 46 NEO, or €4,600.
Transaction history: 4 transactions before yesterday, 12 yesterday. I captured them for you in this screen print:
And let's look at the order book:
The best bid has been fixed by a trader at 0.010453 BTC for 1.35 NEO (about US$135).
The best ask has been set by a trader at 0.012749 BTC for 0.127 NEO (about US$12.7).
The spread to trade Bitcoin for Neo (or vice versa) is 22%. It hurts.
But that isn’t the worst! The major problem is that there is nobody to make the deal with; imagine you want to trade 500 NEO on this trading platform. Even the purchase request at 0.001570 (the last one displayed on the order book) would be executed.
Conclusion on these trading platforms: they should be banned. It is impossible to do anything in these market conditions.
Liquidity problems also on the TOP cryptocurrency trading platforms:
The TOP cryptocurrency trading platforms offer "certain" liquidity thanks to their large number of customers; but this is only true for trading Bitcoin and a few major cryptocurrencies.
As soon as the amounts become a little too large, we find ourselves "doing the market" on certain cryptocurrencies. Try to sell €10,000 of an altcoin at market price. Good luck! Even if you make the lowest ask in the order book, there are still a few "small" cryptocurrency traders who will then position their sales order to a Satoshi below your price. And so on. Ultimately, simply by positioning a "large" order (not executed), the price collapses.
Another solution: sell at the best bid offered? Certainly. But the amounts still have to follow.
The only solution I have found for reselling a cryptocurrency on a major trading platform is to resell it in "small packages". I fix the best "ask" and sell to the best "bid". Then I wait. The order book refills and I start again. You just have to take it easy so as not to collapse the price.
The best solution: sell in the middle of a bullish rally, when buyers aren’t hustling to buy; although in those conditions you would hardly want to sell. ;)
On which platforms can large trading volumes be obtained?
This is a question that has already been addressed here: best platform to trade cryptocurrencies
Ibought an altcoin on a trading platform that doesn’t display volumes, now what?
This is a classic case of a cryptocurrency coming out of an ICO and launching its first market rating on a little known trading platform. There is no one to buy it. Only ICO participants who hope to resell their tokens at the best price (X10 if possible).
In this situation, it is best to keep your altcoins until they are listed on another trading platform. You will be able to sell them at a better price thanks to a higher trading volume and a better spread. Opening on a new exchange is also opening up to new trader clients who did not previously have access to purchasing this cryptocurrency. Traders who only have the possibility to buy (because they did not buy on the other exchange), make the price increase.
Good to know: it is not uncommon to see cryptocurrencies soar by 20% to 50% once they are integrated on major trading platforms. Some cryptocurrency traders do just that: watch out for new cryptocurrencies listed by these trading platforms to buy them immediately and take advantage of this increase.
If you have any questions regarding cryptocurrency trading volumes, do not hesitate to ask. I'll give you my insights on the subject.
