CoinDesk Report:
Author: LTP Research
Binance’s liquidity performance has consistently remained in the lead within a price range of only 0.1%. Once the price range exceeds 0.3%, Binance’s liquidity for Bitcoin trading pairs becomes more volatile, while Kraken’s liquidity performance remains relatively high.
Introducing the LTP Liquidity Score: A liquidity calculation method based on order book depth.
Summary:
In the trading world, liquidity is crucial for any type of investor, trader, or exchange. This report aims to introduce and analyze the liquidity changes of various cryptocurrencies in centralized cryptocurrency exchanges based on order book depth data, in order to derive the overall liquidity trends of these exchanges for reference by investors.
As a leading prime brokerage service provider in the cryptocurrency industry, LTP utilizes an independently developed liquidity scoring method to comprehensively evaluate the liquidity performance of exchanges. By comparing order book depth data for over 13 cryptocurrency pairs across 12 major exchanges for a period of over 6 months, this report arrives at the following key conclusions:
The top four exchanges with the best liquidity are Binance, Kraken, Coinbase, and OKX, and their rankings have remained relatively stable throughout the observed period of over 6 months.
Since March 2024, Gate and KuCoin have shown a gradual increase in liquidity performance, while Bitfinex has exhibited higher volatility in liquidity.
Bitcoin Liquidity Performance: Binance’s liquidity performance has consistently remained in the lead within a price range of only 0.1%. Once the price range exceeds 0.3%, Binance’s liquidity for Bitcoin trading pairs becomes more volatile, while Kraken’s liquidity performance remains relatively high.
Ethereum Liquidity Performance: Compared to Bitcoin, Ethereum’s liquidity is more volatile across all exchanges within five price range levels. Conversely, Binance’s Ethereum liquidity score remains relatively stable only when the price range exceeds 0.3%.
By observing the LTP Liquidity Index, from January to June 2024, the overall LLI liquidity index of the market has steadily increased, with five liquidity peaks. The first three occurred in March when the Bitcoin price surpassed previous highs, and the last two occurred in early June.
Brief Explanation of Liquidity Concept:
What does liquidity mean in finance?
In the financial market, liquidity refers to the ease with which an asset or security can be converted into cash without significantly affecting its price.
The phrase “without significantly affecting its price” means that:
The lower the impact of a transaction on the market price, the higher the liquidity of the asset.
The higher the impact of a transaction on the market price, the lower the liquidity of the asset.
For example:
Scenario 1: Alice purchases $100,000 worth of Asset A, causing the price to increase by 1%.
Scenario 2: Bob purchases $100,000 worth of Asset B, causing the price to increase by 2%.
In the above two scenarios, it can be seen that Asset A has higher liquidity compared to Asset B. This is because for the same investment amount, Asset A has a smaller price increase, indicating that the investment has a smaller impact on the market price, thus indicating better liquidity.
The phrase “ease of conversion into cash” indicates:
The easier it is to convert an asset into cash, the better its liquidity.
The more difficult it is to convert an asset into cash, the worse its liquidity.
For example, in general:
Gold is easier to sell for fiat currencies than real estate, which means that gold can be converted into cash more quickly and easily.
Therefore, gold has better liquidity than real estate.
Liquidity in Crypto Exchanges:
Centralized Exchange Liquidity (CEX)
Source: binance.com
In the crypto industry, almost every centralized exchange uses an order book to list all pending orders.
Generally, the more buy and sell orders included in the order book, the better the liquidity of the trading asset.
Source: binance.com
The above image is a snapshot of the Bitcoin order book depth view. The left side represents sell orders, and the right side represents buy orders. Investors can see the total number of Bitcoins available for buyers and sellers within a specific price range. As shown in the image, the 0.1% price range shows that there are 50 Bitcoins available for buyers and 72 Bitcoins available for sellers.
By comparing the depth of the order book, both in terms of the number of Bitcoins and in terms of USD, investors can identify which exchange provides the best liquidity.
LTP Liquidity Score
What is the LTP Liquidity Score?
To address the issue of exchanges inflating trading volume, LTP has developed a novel exchange ranking method that relies solely on the analysis of objective order book data, without considering subjective or other confusing factors. Order book data provides valuable insights into exchange trading activity, market depth, and participant behavior. This alternative ranking method is not intended to replace existing volume-based rankings but serves as a complementary tool. By examining order book data, we can better understand the differences in liquidity between different exchanges and use liquidity as an indicator to evaluate exchange performance. In the following report, we attempt to:
Explain the method used to calculate the liquidity score.
Compare the liquidity of 12 centralized exchanges and rank them.
Analyze the liquidity data of mainstream high-volume tokens.
Introduce and explain the LTP Liquidity Index.
How is the exchange liquidity score calculated?
Collect order book snapshot data: Obtain order book data for the same base token trading pairs from different exchanges. For example, BTCUSDT from Binance, BTC-USD from Coinbase, XBTUSD from Kraken, and tBTCUSD from Bitfinex. This data will include buy and sell prices and corresponding quantities at various price levels.
Calculate depth at price ranges: Determine the depth of the order book at specific price range levels. For example, calculate the depth at price ranges of 0.1%, 0.2%, 0.3%, 0.4%, and 0.5%. This involves summing up the number of orders within specific percentage ranges of the market price.
Calculate liquidity score for each trading pair: Compare the depth of different trading pairs within each price range. Calculate the liquidity score for each trading pair based on relative depth. The greater the depth, the higher the liquidity score.
Aggregate liquidity scores: Combine the liquidity scores obtained for each trading pair at different price ranges (e.g., 0.1% to 0.5%) to calculate a weighted average score by assigning appropriate weights to each price range and liquidity score.
Calculate liquidity scores for multiple token pairs: Extend the same method to calculate liquidity scores for more trading pairs and different base tokens. Collect order book data for the required trading pairs and repeat steps 2 to 4.
Calculate liquidity score for each exchange: Finally, calculate the overall liquidity score of an exchange by aggregating the scores of all different trading pairs within the exchange. The liquidity score is weighted based on the 24-hour trading volume of each trading pair. Trading pairs with higher volume have a greater impact on the overall liquidity score of the exchange.
The above process is illustrated in the diagram on the next page. For a detailed explanation of the method, please visit: Exchange Liquidity Ranking Methodology.
Choice of Tokens and Trading Pairs:
For spot trading, an exchange offers multiple trading options for different tokens and usually provides multiple quote currency options for the same base token. Therefore, the liquidity of an exchange is highly dispersed.
To analyze the liquidity of exchanges more realistically, we first examine their best liquidity trading pairs.
Ideally, all trading pairs should be considered, but due to specific limitations, we select a limited number of trading pairs that account for over 70% of the total trading volume.
When comparing exchanges, we focus on trading pairs with the same base token (e.g., BTC-USDT vs. BTC-USD).
We first analyze the order book data for the selected trading pairs. The score for a trading pair is calculated by comparing different trading pairs with the same base token within the same exchange.
The overall liquidity score of an exchange is based on the trading pair scores weighted by trading volume.
Exchange Liquidity Rankings
Exchange Liquidity Score
As the world’s largest centralized crypto exchange, Binance remains the most liquid market, with an average liquidity score of 95.99 over the past 6 months, ranking 3There has been significant volatility at the beginning of the month. Kraken, currently ranked second in terms of liquidity, has an average score of 86.85.
The top four exchanges with the best liquidity are Binance, Kraken, Coinbase, and OKX, and their rankings have remained relatively stable over time.
Among the other six exchanges, Gate.io is currently ranked seventh with an average score of 71.87. Gate.io’s liquidity score saw a significant increase after March 20th, peaking at over 80, before falling back after a month. Bitfinex follows closely, with the highest volatility among all exchanges.
From the trend, Gate and KuCoin’s liquidity performance has been gradually improving since March 2024. Phemex, Huobi, Crypto.com, and Coinex, on the other hand, show no significant changes.
The liquidity of cryptocurrencies
Bitcoin liquidity
By aggregating the Bitcoin order books from 12 centralized exchanges and categorizing them as buy and sell orders, we observe the depth of the order books within the price ranges of 0.1% to 0.5%.
To zoom in, we selected the depth change data of Bitcoin between June 11th and 12th, 2024, within a 30-hour period.
It is evident that within the 0.1% price range, the average Bitcoin depth does not exceed $50 million. At the 0.3% level, it only reaches $100 million. The difference between the 0.4% and 0.5% ranges is not significant.
Ranking of Bitcoin market liquidity among exchanges
Binance is the most liquid exchange for Bitcoin trading orders. Particularly, Binance’s liquidity performance is very stable near the market price, consistently ranking first. From this perspective, for retail traders, Binance is always able to fulfill orders at the best prices.
However, when considering orders that are far from the market price, Binance’s advantage is not as apparent. Within several hundred points of the price range, OKX and Kraken often take the first position.
When the price range extends to 0.4%, Kraken can maintain the first position for most of the time. Kraken’s ability to rank first in such price ranges is closely related to its ability to provide free Bitcoin trading fees.
Ethereum liquidity
Similar to Bitcoin, the left-side data captures the depth change of Ethereum (ETH) between June 11th and 12th, 2024, for a 30-hour period.
The depth distribution of ETH is more concentrated within the 0.3% to 0.4% level. At the 0.1% level, the depth is below $25 million; at the 0.3% level, it exceeds $50 million; and at the 0.4% level, it exceeds $75 million. However, there is no significant increase at the 0.5% level.
Based on the data from this period, the buy and sell orders for Ethereum ETH have always maintained a 1:1 ratio.
Ranking of Ethereum market liquidity among exchanges
The liquidity of Ethereum ETH fluctuates more than BTC in the 12 exchanges observed. Although Binance still ranks first, its score has fluctuated by over 50% within the observed 30-hour period.
Especially during the early hours of June 11th, except for the 0.5% price range, the liquidity scores of Ethereum ETH in all other ranges did not exceed 75. It was not until after 6 AM that Binance and other exchanges showed improvements.
OKX and Bybit have the potential to catch up with Binance in terms of Ethereum ETH liquidity. Especially in the 0.1% price range, their liquidity scores are very close to Binance.
LTP Liquidity Index (LLI)
What is the LTP Liquidity Index?
The LTP Liquidity Index is an indicator that measures the overall liquidity of the cryptocurrency market. It is derived from the weighted order book depth data of BTC and ETH from three major centralized exchanges: Binance, Coinbase, and Kraken. It provides investors with an intuitive understanding of how market liquidity changes with time and BTC prices. Let’s take a look at the basic principles of the LTP Liquidity Index.
How is the LTP Liquidity Index (LLI) calculated?
We extract the depth data of buy and sell orders from the BTC order books of Binance, Coinbase, and Kraken and divide the depth into five price ranges: 0.1%, 0.2%, 0.3%, 0.4%, and 0.5%. We then calculate the total depth for each price range.
Next, we assign weights to each price range: 30% for 0.1%, 25% for 0.2%, 20% for 0.3%, 15% for 0.4%, and 10% for 0.5%.
On a daily basis, we use these weights to calculate the weighted depths for each exchange in each price range. We then add up the weighted depths of the three exchanges to obtain the daily weighted depth of BTC.
We set the initial day’s depth data as the base value of 1,000. By comparing the remaining depth data with the initial day’s data, we calculate the BTC liquidity index as a percentage of the starting 1,000 points. This gives us the BTC liquidity index.
Using the same method, we calculate the liquidity index for ETH. Then, we combine the BTC and ETH liquidity indices, with BTC weighted at 75% and ETH weighted at 25%, to obtain the LTP Liquidity Index.
The current LTP Liquidity Index only includes BTC and ETH as the main crypto assets, but more crypto assets will be introduced based on market capitalization, with corresponding weights.
LTP Liquidity Index (LLI)
The upper chart, with hourly data as the basis, clearly shows the relationship between the LTP Liquidity Index (LLI) and Bitcoin prices from January 2024 to mid-June 2024.
From the chart, it can be seen that over the past six months, the liquidity index has gradually increased from the initial point of 1,000, with a standard deviation of approximately 250 points.
As of June 13th, 2024, the liquidity index has risen to 1,748 points. During the Bitcoin all-time high (ATH) period, there were several outliers exceeding 3,000 points, indicating a significant increase in market liquidity in the short term, which is an important signal for price increases. It is worth noting that this signal also appeared in early June.
BTC Liquidity Index
When we examine the liquidity index of BTC separately, we can see that the two liquidity peaks in March and June mentioned above both come from BTC, with peaks approaching 4,000 points.
In contrast, BTC liquidity has only experienced two severe dips within that range, occurring in mid-April and the end of May.
Bitcoin Order Book Depth Data
This chart displays the layered depth data of BTC from the three exchanges. Although the depth data of the BTC order book is divided into five ranges (0-0.1%, 0.1%-0.2%, 0.2%-0.3%, 0.3%-0.4%, 0.4%-0.5%) during actual calculations, for clarity, the chart only shows the first three ranges.
It is evident that the liquidity peak in March for Bitcoin mainly occurred within the 0.2%-0.3% range.
ETH Liquidity Index
As for the liquidity index of Ethereum ETH, it had only one peak exceeding 3,000 points during the ATH period in mid-March and no such peaks in June. Instead, the ETH liquidity index dropped below 500 points at three different time points: before the March peak, in mid-April, and after the approval of the Ethereum ETF at the end of May.
Ethereum Order Book Depth Data
This chart displays the depth data of the ETH order books from Binance, Kraken, and Coinbase. Similarly, although the actual calculation divides the ETH order book depth data into five ranges, the chart only shows the first three ranges, namely 0-0.1% to 0.2%-0.3%.
It is apparent that the three liquidity troughs in the past six months all occurred within the 0.2%-0.3% range. Each time liquidity sharply declined, the overall liquidity level fell below $10 million.
Summary
We started with the basic concept of liquidity and introduced how liquidity is understood in traditional finance to investors. Next, we explained how the order book depth of cryptocurrency exchanges affects liquidity and briefly introduced the concept of liquidity in decentralized exchanges.
Then, we introduced how LTP calculates the LTP liquidity scores for each exchange and cryptocurrency using depth data from different price ranges in the exchange order books. After obtaining long-term data, we ranked the liquidity of 12 target centralized exchanges.
From the liquidity score data, it can be seen that the top four exchanges with the best liquidity are Binance, Kraken, Coinbase, and OKX, and their rankings have remained relatively stable over a six-month observation period. Gate and KuCoin’s liquidity performance has shown a gradual increase since March 2024. Bitfinex’s liquidity, on the other hand, exhibits higher volatility.
Additionally, we compared the liquidity performance of BTC and ETH trading pairs on various exchanges over a six-month period and observed that Binance does not always maintain the top position.
Only within the 0.1% price range does Binance’s liquidity performance consistently rank first. Once the price range exceeds 0.3%, Binance’s Bitcoin trading pair liquidity becomes more volatile, while Kraken’s liquidity performance is relatively higher.
Finally, to assess the volatility of the overall market liquidity, we introduced the LTP Liquidity Index. We observed that market liquidity has been gradually increasing over the past six months.
It should be noted that the original data for this report comes from public exchange order book APIs, and we only used the major trading pairs from 12 mainstream exchanges, so the coverage is not comprehensive. In future versions, we will include more trading pairs to make the scores and indices more effective.
