Author: LTP Research
Binance’s liquidity performance has consistently remained in a leading position within a price range of 0.1%. However, once the price range exceeds 0.3%, the liquidity of Binance’s Bitcoin trading pairs becomes more volatile, while Kraken’s liquidity performance is relatively higher.
Introduction of LTP Liquidity Score: A liquidity calculation method based on order book depth.
Summary of the Report:
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, and derive the overall liquidity trend of these exchanges for investors’ reference.
As a leading prime brokerage service provider in the cryptocurrency industry, LTP utilizes independently developed liquidity scoring methods to comprehensively evaluate the liquidity performance of exchanges. By comparing order book depth data for more than 13 cryptocurrency pairs from 12 mainstream exchanges over a period of more than 6 months, the report draws the following key conclusions:
The top four exchanges with the best liquidity are Binance, Kraken, Coinbase, and OKX. Their rankings have remained relatively stable over the observed period of more than 6 months.
Since March 2024, Gate and KuCoin have shown a gradual increase in liquidity performance. Bitfinex, on the other hand, has exhibited higher volatility in liquidity.
Bitcoin Liquidity Performance: Binance’s liquidity performance has consistently remained in a leading position within a price range of 0.1%. However, once the price range exceeds 0.3%, Binance’s Bitcoin trading pair liquidity becomes more volatile, while Kraken’s liquidity performance is relatively higher.
Ethereum Liquidity Performance: Compared to Bitcoin, Ethereum’s liquidity is more volatile across all exchanges in five price range levels. Conversely, Binance’s Ethereum liquidity score remains 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 steadily increased, with five liquidity peaks occurring. The first three occurred in March when the Bitcoin price surpassed its previous all-time high, 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.
“Without significantly affecting its price” means:
The smaller the impact of a transaction on the market price, the higher the liquidity of the asset.
The larger 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 a 1% increase in price.
Scenario 2: Bob purchases $100,000 worth of Asset B, causing a 2% increase in price.
In the above two scenarios, Asset A is more liquid 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 converting 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 currency than real estate, which means gold can be converted into cash more quickly and easily.
Therefore, gold has better liquidity than real estate.
Liquidity of Crypto Exchanges:
Centralized Exchange (CEX) Liquidity
Source: binance.com
In the crypto industry, almost every centralized exchange uses order books to list all outstanding 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, while the right side represents buy orders. Investors can view the total amount of Bitcoin available for purchase and sale within a specific price range. As shown in the image, the 0.1% price range shows that there are 50 Bitcoins available for purchase and 72 Bitcoins available for sale.
By comparing the depth of the order books, both in terms of Bitcoin quantity 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 artificially 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 to serve as a supplementary tool. By examining order book data, we can better understand the liquidity differences between different exchanges and utilize liquidity as an indicator for evaluating exchange performance. In the following report, we attempt to:
Explain the methodology used to calculate the liquidity score.
Compare the liquidity ranking of 12 centralized exchanges.
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. These data will include buy and sell prices at different price levels and corresponding quantities.
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 the quantities of orders within specific percentage ranges of the market price.
Calculate Liquidity Score for Each Trading Pair: Compare the depths of different trading pairs at each price range. Calculate the liquidity score for each trading pair based on relative depth. The higher 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. Assign appropriate weights to each price range level and liquidity score.
Calculate Liquidity Score for Multiple Token Trading Pairs: Extend the same method to calculate liquidity scores for more trading pairs and different base tokens. Collect order book data for the desired trading pairs and repeat steps 2 to 4.
Calculate Liquidity Score for Each Exchange: Finally, calculate the overall liquidity score for each exchange by aggregating the scores from all different trading pairs within the exchange. Weight the liquidity scores by the 24-hour trading volume of each trading pair. Trading pairs with higher trading volumes 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 the Exchange Liquidity Ranking Methodology.
Selection of Tokens and Trading Pairs
For spot trading, an exchange offers multiple trading options for different tokens and generally provides trading options for multiple quote tokens for the same base token. Therefore, the liquidity of an exchange is highly dispersed.
To analyze the liquidity of exchanges more accurately, we first examine the 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 of 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 continues to be the most liquid market, with an average liquidity score of 95.99 over the past 6 months, with only significant fluctuations occurring in early March.Next is Kraken, which currently ranks second in liquidity, with an average score of 86.85.
The top four exchanges with the best liquidity are Binance, Kraken, Coinbase, and OKX, with relatively stable rankings over time.
Source: LTP Research
Source: LTP Research
Among the remaining six exchanges, Gate.io currently ranks seventh, with an average score of 71.87. Gate.io’s liquidity score has seen a significant increase after March 20th, reaching over 80 at one point, but then declined after a month. Bitfinex follows closely behind, with the highest volatility among all exchanges.
From the trend, Gate and KuCoin’s liquidity performance has been gradually improving since March 2024, while Phemex, Huobi, Crypto.com, and Coinex show no significant changes.
Source: LTP Research
Source: LTP Research
Liquidity of cryptocurrencies
Liquidity of Bitcoin
Source: LTP Research
By aggregating the Bitcoin order books from 12 centralized exchanges and categorizing them into buy and sell orders, we observed the order book depth performance of Bitcoin within the price range of 0.1% to 0.5%.
To zoom in on the granularity, 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 exchanges’ liquidity
Source: LTP Research
Binance is the most liquid exchange in Bitcoin trading orders. Especially near the order book close to the market price, Binance’s liquidity performance is very stable and consistently ranks first. From this perspective, for retail traders, Binance always provides the best prices for completing orders.
However, when considering orders that are far from the market price, Binance’s advantage is not as evident. Within a few hundred points of the price range, OKX and Kraken often occupy the first position.
When the price range expands to 0.4%, Kraken can maintain the first position for most of the time. Kraken’s ability to rank first in such a price range is closely related to its ability to provide free Bitcoin trading fees.
Liquidity of Ethereum
Source: LTP Research
Similar to Bitcoin, the left-side data shows the depth change of Ethereum (ETH) within a 30-hour period between June 11th and 12th, 2024.
The depth distribution of ETH is more concentrated in the range of 0.3% to 0.4%. At the 0.1% level, the depth is less than $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, buy orders and sell orders for Ethereum ETH always maintain a 1:1 ratio.
Ranking of Ethereum exchanges’ liquidity
Source: LTP Research
The liquidity of Ethereum ETH fluctuates more compared to BTC in the 12 exchanges. Although Binance still ranks first, the fluctuation of its score has exceeded 50% within the observed 30-hour period.
Especially during the early hours of June 11th, except for the 0.5% price range, the liquidity score of Ethereum ETH in all other ranges did not exceed 75. It was not until after 6 am that Binance and other exchanges showed improvement.
OKX and Bybit have the potential to catch up with Binance in terms of Ethereum ETH liquidity performance. 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 intuitively helps investors understand how market liquidity changes over time and with BTC price fluctuations. Now let’s take a look at the basics of the LTP Liquidity Index.
How is the LTP Liquidity Index (LLI) calculated?
We extract the buy and sell depth data from the BTC order books of Binance, Coinbase, and Kraken and divide the depth into five price ranges, from 0.1% to 0.5%. Then, we 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 depth for each exchange in each price range. Then, we add up the weighted depths of the three exchanges to obtain the daily weighted depth of BTC.
We set the depth data of the starting day as the base value of 1,000. By comparing the remaining depth data with the starting day’s data, we calculate the BTC liquidity index as a percentage reference starting from 1,000 and fluctuating from there.
Using the same method, we calculate the liquidity index for ETH. Then, we combine the BTC liquidity index and ETH liquidity index, with BTC weighted at 75% and ETH weighted at 25%, to obtain the LTP Liquidity Index.
The current LTP Liquidity Index only introduces BTC and ETH as the main crypto assets, and in the future, more crypto assets will be introduced based on market value, accompanied by corresponding weights.
LTP Liquidity Index (LLI)
Source: LTP Research
The upper chart, based on hourly changes, 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 around 250.
As of June 13th, 2024, the liquidity index has risen to 1,748. During the period of Bitcoin’s all-time high (ATH), 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 noteworthy 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 close to 4,000 points.
In contrast, BTC liquidity experienced only two significant dips in this range, occurring in mid-April and late May.
Source: LTP Research
Source: LTP Research
Bitcoin Order Book Depth Data
Source: LTP Research
This graph displays the layered depth data of BTC order books from the three exchanges. Although the actual calculation divides the BTC order book depth data into five ranges (0-0.1%, 0.1%-0.2%, 0.2%-0.3%, 0.3%-0.4%, 0.4%-0.5%), for clarity, the graph only shows the first three ranges.
It is clear that the liquidity peak of Bitcoin in March primarily occurred within the 0.2%-0.3% range.
ETH Liquidity Index
As for the liquidity index of Ethereum ETH, there was only one peak exceeding 3,000 points during the peak period in mid-March, and no such peaks occurred in June. Instead, the liquidity index of ETH 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.
Source: LTP Research
Source: LTP Research
Ethereum Order Book Depth Data
Source: LTP Research
This graph displays the depth data of the ETH order books from the exchanges Binance, Kraken, and Coinbase, divided into ranges. Similarly, although the actual calculation divides the ETH order book depth data into five ranges, the graph only shows the first three ranges: 0-0.1% and 0.2%-0.3%.
It is evident that all three liquidity troughs in the past six months occurred within the 0.2%-0.3% range. Each time liquidity sharply declined, the overall liquidity level dropped 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 uses depth data from different price ranges in exchange order books to calculate the LTP liquidity scores for each exchange and cryptocurrency. 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 during the observation period of over six months. Since March 2024, the liquidity performance of Gate and KuCoin has shown a gradual increase. Bitfinex’s liquidity, on the other hand, exhibits higher volatility.
In addition, we compared the liquidity performance of BTC and ETH trading pairs across different exchanges over a six-month period. It was observed that Binance does not always maintain the top position.
Only within the 0.1% price range, Binance’s liquidity performance consistently remains in the lead. 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 evaluate the volatility of the overall market liquidity, we introduced the LTP Liquidity Index. We observed a gradual increase in market liquidity over the past six months.
It should be noted that the raw data of this report comes from public exchange order book APIs, and we only used 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.
