Author: LTP Research
Binance’s liquidity performance has consistently maintained a leading position within a price range of 0.1%. Once the price range exceeds 0.3%, the liquidity of Binance’s Bitcoin trading pairs becomes more volatile, while Kraken’s liquidity performance remains relatively high.
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 trends of these exchanges for reference by investors.
As a leading prime brokerage service provider in the cryptocurrency industry, LTP uses independently developed liquidity scoring methods to comprehensively evaluate the liquidity performance of exchanges. By comparing order book depth data for over 13 cryptocurrency pairs from 12 mainstream exchanges over a period of more than 6 months, this report draws 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 during the observation period of over 6 months.
Since March 2024, the liquidity performance of Gate and KuCoin has shown a gradual increase. Bitfinex, on the other hand, has exhibited higher volatility in liquidity.
Bitcoin liquidity performance: Within a price range of 0.1%, Binance’s liquidity performance has consistently maintained a leading position. Once the price range exceeds 0.3%, the liquidity of Binance’s Bitcoin trading pairs becomes more volatile, while Kraken’s liquidity performance remains relatively high.
Ethereum liquidity performance: Compared to Bitcoin, the liquidity of Ethereum in all exchanges is more volatile across 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 has steadily increased and experienced five liquidity peaks. The first three occurred in March when the price of Bitcoin broke its previous all-time high, and the last two occurred in early June.
Brief description 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.
Where
“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% price increase.
Scenario 2: Bob purchases $100,000 worth of Asset B, causing a 2% price increase.
In the above two scenarios, it can be seen that 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.
And
“the ease with which an asset can be converted 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, generally:
Gold is easier to sell for fiat currency than real estate, indicating that gold can be converted into cash more quickly and easily.
Therefore, gold has better liquidity compared to 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 the open orders.
In general, 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 shows the sell orders, and the right side shows the buy orders. Investors can see the total amount of Bitcoin available for buyers and sellers within a specific price range. As shown in the image, within a price range of 0.1%, there are 50 Bitcoins available for buyers and 72 Bitcoins available for sellers.
By comparing the depth of order books, both in terms of Bitcoin quantity and in terms of US dollars, investors can identify which exchange offers the best liquidity.
LTP liquidity score
What is the LTP liquidity score?
To address the issue of exchanges inflating trading volumes, 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 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 within price ranges: Determine the depth of the order book at specific price range levels. For example, calculate the depth within 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 scores 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 larger the depth, the higher the liquidity score.
Aggregate liquidity scores: Combine the liquidity scores obtained for each trading pair across different price ranges (e.g., 0.1% to 0.5%) to calculate a weighted average score. Assign appropriate weights to each price range and liquidity score.
Calculate liquidity scores 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 scores for individual exchanges: Finally, calculate the overall liquidity score for each exchange by aggregating all the different trading pairs within the exchange. Weight the liquidity scores based on the 24-hour trading volume of each trading pair. Trading pairs with higher trading volumes will have a greater impact on the overall exchange liquidity score.
The above process is illustrated in the diagram on the next page. For a detailed explanation of the methodology, 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 generally provides multiple quote currencies 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 their most liquid 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 scores for trading pairs are 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 weighted liquidity scores of all the different trading pairs within the exchange. Trading pairs with higher trading volumes have a greater impact on the overall exchange liquidity score.
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, with only a significant fluctuation in early March.Next is Kraken, which is currently ranked second in terms of liquidity, with 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 has shown a significant increase since March 20th, reaching over 80 at one point before declining after a month. Bitfinex follows closely behind, with the highest volatility among all exchanges.
Looking at the trends since March 2024, the liquidity performance of Gate and KuCoin has gradually improved, while Phemex, Huobi, Crypto.com, and Coinex have shown no significant changes.
The liquidity of cryptocurrencies
Bitcoin liquidity
By aggregating Bitcoin order book data from 12 centralized exchanges and categorizing them into buy and sell orders, we observed the depth of the order book within the price range of 0.1% to 0.5%.
To zoom in, we selected the depth change data of Bitcoin between June 11th and 12th, 2024, for a period of 30 hours.
It is evident that the average Bitcoin depth does not exceed $50 million within the 0.1% price range. 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 liquidity among exchanges
In Bitcoin trading orders, Binance is the most liquid exchange. Especially near the order book close to the market price, Binance’s liquidity performance remains stable and consistently ranks first. From this perspective, for retail traders, Binance always offers the best price to complete orders.
However, when considering orders that are far from the market price, Binance’s advantage is not as apparent. Within a few hundred points of 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.
Ethereum liquidity
Similar to Bitcoin, the left-side data captures the depth change of Ethereum (ETH) within 30 hours 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; 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 of Ethereum (ETH) always maintain a 1:1 ratio.
Ranking of Ethereum liquidity among exchanges
The liquidity of Ethereum (ETH) fluctuates more than BTC in the 12 exchanges. Although Binance still ranks first, the fluctuation of its score has exceeded 50% within the observed 30-hour interval.
Especially in the early morning 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. 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, 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 sum 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 change starting from 1,000. This gives us the BTC liquidity index.
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 includes BTC and ETH as the main crypto assets. In the future, more crypto assets will be introduced based on market value, accompanied by corresponding weights.
LTP Liquidity Index (LLI)
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 in the past six months, the liquidity index has gradually increased from the starting point of 1,000, with a standard deviation of approximately 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, 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, it can be seen that the two liquidity peaks in March and June mentioned above both came from BTC, with peaks close to 4,000.
In contrast, BTC liquidity in that range only had two significant dips, which occurred in mid-April and late May.
Bitcoin Order Book Depth Data
This graph shows the layered depth data of BTC order books from three exchanges.
Although the BTC order book depth data is divided into five ranges (0-0.1%, 0.1%-0.2%, 0.2%-0.3%, 0.3%-0.4%, 0.4%-0.5%) in actual calculations, for clarity, the graph 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), there was only one peak exceeding 3,000 points during the historical high period in mid-March, and no such peak occurred in June. Instead, the ETH liquidity index dropped below 500 points at three different time points: before the peak in March, in mid-April, and after the approval of the Ethereum ETF at the end of May.
Bitcoin Order Book Depth Data
This graph shows the depth data of ETH order books from Binance, Kraken, and Coinbase exchanges.
Similarly, although the ETH order book depth data is divided into five ranges in actual calculations, the graph only shows the first three ranges, namely 0-0.1% to 0.2%-0.3%.
It is evident that the three liquidity troughs in the past six months all occurred within the 0.2%-0.3% range. Each time the 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 score for each exchange and cryptocurrency. With 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 the observation period of more than six months. Since March 2024, Gate and KuCoin have shown a gradual increase in liquidity performance. Bitfinex’s liquidity has shown higher volatility.
Additionally, we compared the liquidity performance of BTC and ETH trading pairs among exchanges over a six-month period and observed that Binance does not always remain in the first 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 remains relatively high.
Finally, to assess 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 for 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 indexes more effective.
