Kaiko_Research_February_2021_Market_Report.pdf

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February 2021
Kaiko
Research
Monthly Market Report
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here.
www.kaiko.com
MONTHLY
OVERVIEW
February encapsulated both the promise and pitfalls that exist today in the cryptocurrency industry.
Throughout the month, markets reached multiple new all time highs, the first North American Bitcoin
ETF started  trading,  Tesla announced a $1.5 billion BTC  purchase, and Coinbase's S-1 filing revealed
surging institutional demand. Yet, the compounding cycle of good news eventually proved unsustainable
for prices, resulting in a double-digit crash across crypto markets, which triggered the highest volume of
forced liquidations ever recorded. The vulnerability  of  crypto exchange infrastructure was on display
during the market mayhem, with downtime, lagging interfaces, and a brief flash crash on Kraken. While a
lot has changed over the past year, 
markets are still highly-leveraged, which makes the magnitude of
price crashes extreme and unpredictable. The good news, though, is that there is increasing evidence
that overall market liquidity has improved, with spreads and market depth recovering more quickly
following extreme volatility compared with one year ago. 
This monthly report was written by Clara Medalie with help from the Kaiko team.
About Kaiko
Kaiko is the leading digital assets data
provider servicing institutional investors,
funds, regulators, researchers, exchanges, and
platforms with granular market data across
100+ spot and derivatives exchanges. We
enable seamless connectivity to historical and
live data feeds through custom data plans,
designed for your use case. Contact us at
hello@kaiko.com to get started today. 
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www.kaiko.com
The Anatomy of a Price Crash
On February 22, prices went haywire. From one minute to the next, Bitcoin bounced between $48k, $52k, and back to
$48k. It seemed that price feeds were broken, but what was actually happening was that a complete decimation of order
book depth made the process of price discovery near impossible. When there is no market depth remaining on an order
book, there is nothing stopping large market orders from whipsawing the price of Bitcoin. In extreme scenarios, this can
cause what is known as a flash crash, which is when the withdrawal of orders amplifies price declines. Below, we chart
market depth for Coinbase's BTC-USD trading pair, and can observe the complete collapse of depth from one minute to
the next. Following a crash, market makers will adjust their positions and re-enter markets, which stabilizes prices. 
Minute-by-Minute Market Depth on Coinbase
The quantity of bids and asks placed within 10% of the mid price on order book snapshots 
Price crashes almost always
cause volumes to surge, which
can be very  lucrative for
exchanges.  At the time, March's
Black Thursday price crash saw
the highest daily volume
executed over the past year,
topping $2 billion across seven
of the most liquid BTC-USD
pairs. Since the start of the latest
bull run, volumes have surged
and are now magnitudes greater
than the 2020 daily average. The
most recent price crash saw
volumes upwards of $8 billion,
one of the highest daily volumes
ever recorded (second only to
the January 11 price crash).
Trade Volume During a Crash
Daily BTC-USD volume
www.kaiko.com
02
Institutional Demand for Crypto
Products Continues to Soar
February was again a big month of institutional developments in the cryptocurrency industry. Ethereum had its CME
futures debut, the first North American crypto ETF started trading on the Toronto Stock Exchange, several new crypto
trusts began accepting investors, and a range of investment product applications were filed with regulatory agencies.
Companies also amped up their purchases of Bitcoin for their balance sheets, most notable being  Tesla's internet-
breaking investment in $1.5 billion worth of BTC. Since September, the stock prices of companies that have entered
crypto markets has soared, which suggests equities investors are not shying away despite the volatility risks of crypto.
ETP issuers,
exchanges, funds,
and index
providers, are
scrambling to get
regulatory
approval to meet
growing demand.
Proportion of Dollar Volume
Companies have
started taking
crypto
seriously as an
asset to hold on
their balance
sheet. 
www.kaiko.com
03
Exchange Competition is Heating Up
One of the biggest stories of the month was the release of  Coinbase's S-1 filing for the exchange's upcoming IPO,
which was a goldmine of information about their profits, growth, and institutional userbase. As exchange's race to
attract the growing pool of crypto traders, regulated and unregulated exchanges are increasingly facing off. We
find
that regulated exchanges such as LMAX Digital, Coinbase, and Bitstamp are historically more cautious when selecting
the crypto assets they list compared with crypto-only exchanges like Binance.  However, the more listed pairs, the
more attractive the exchange becomes to a wider range of crypto participants. Binance currently takes the lead at
1,247 spot trading pairs, and its strategy of rapid listings across a range of assets has paid off, as the exchange boasts
the highest volume and user base by a longshot.  Coinbase's
market share has grown over the past couple of years, but
exchanges like Binance continue to dominate, likely because of looser regulatory constraints.
Market Share of Bitcoin Volume
Percentage of Total Monthly Volume for BTC-USD and BTC-USDT Pairs
Number of Listed Spot Trading Pairs
www.kaiko.com
04

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