How to Read a Depth Chart When Trading
This morning on Twitter, I went "OH MY GOODNESS" at this depth nautical chart for the USDT/USD pair on the Kraken substitution, as at 0700 UTC:
This is fine moving picture.twitter.com/igxzMautXV
— imaginary_username (@im_uname) January 28, 2018
Anybody went, "uh, OK … what am I looking at, and why is this important news?"
This is a picture of a market where lots of people want to sell tethers for dollars, nearly nobody wants to buy tethers for dollars, and the price is hanging in the air like Wile E. Coyote about to become gravity lessons.
Why is this important? Considering Tether is a lot of what appears to be holding the price of Bitcoin up.
So here's how to read a depth chart — and what all this seems to hateful!
Tether and audits
Reader Aranfan asks:
What I'm wondering is how a thing on a completely different blockchain boosts the toll of bitcoin.
To recap: a Tether (USDT) is a dollar-substitute token, that you can move around more easily than an bodily The states dollar. It'southward popular with exchanges that can't or don't desire to bargain in USD.
Tether, Inc. — which was gear up by the people from the large crypto exchange Bitfinex, and remains closely associated — upshot these as tokens running over other blockchains. They state that every USDT is backed by a United states of america dollar on deposit. So far, the market place has treated USDT as if they are indeed pegged to USD.
At that place accept been a lot of questions about this — because Tether has been furiously issuing new USDT, congruent with dips in the cost of a bitcoin. This accelerated recently — over half a billion dollars' worth of tethers have been issued just this month.
They maintain that all of these new USDT are backed past USD on deposit — that this isn't only fictional reserve cyberbanking. Phil Potter from Bitfinex bodacious me of this in electronic mail, and Lao Mao, proprietor of the BigONE substitution, posted recently of how he discussed this with them, looked at the books and was reassured — but there has never been a proper inspect of all of this.
Bitfinex/Tether promised a total audit was in progress — but a few days ago, their auditor, Friedman LLC, scoured their site of all mention of Bitfinex and Tether. Terminal night, Bitfinex confirmed that the two had ended their relationship:
Given the excruciatingly detailed procedures Friedman was undertaking for the relatively unproblematic balance canvass of Tether, information technology became clear that an audit would be unattainable in a reasonable time frame.
The marketplace has not responded well to this, and, overnight, seems to exist pricing tethers at rather less than a dollar.
BTC is about $400 lower on GDAX/Coinbase than Bitfinex for once, because GDAX deals in actual dollars and Bitfinex in tokens that the market doesn't quite and so strongly believe are dollars any more — so traders are selling their not-USD on Bitfinex and ownership BTC, which they can take elsewhere to sell for USD. This raises the "toll" on Bitfinex and lowers information technology on the other exchange.
The other problem is that at that place are no reports of anyone ever successfully redeeming their USDT for USD from Tether themselves — bodily money goes in, it doesn't come out.
There is literally one USDT/USD trading pair that you can greenbacks out of tethers in, on Kraken — become here and select "USDT/USD" at top-left. It'southward not a very usable market place, because there's no depth to the order book — hardly anyone wants to buy tethers, certainly non as many as want actual coin — then if you wanted to cash out 1,000,000 USDT so yous'd be getting USD 0.30 each for the last ones. (Another example of "marketplace cap" beingness a bad and meaningless number — you lot could tank a $2b marketplace cap with a $1m sale.) Most of the activity on it looks very like bot-based wash trading around 1 USDT = one USD. (On that video, note the regular, repetitive transactions for the aforementioned amounts — up a bit, then down a bit.)
At present people are trying to employ this tiny gateway to become real dollars out.
Reading a depth chart
Let's look once more at that tweet of Kraken USDT/USD around 0700 UTC:
This is fine pic.twitter.com/igxzMautXV
— imaginary_username (@im_uname) January 28, 2018
Left to right is USD price, lesser to top is quantity of USDT. The carmine (left) is "buy" orders for USDT when the USD cost goes down that far, and the black (right) is "sell" orders for when it goes up that far. The bottom chart is the orders themselves, the top chart is cumulative.
Here'southward the bitcoin depth nautical chart from GDAX at i:16pm today, which is a fleck more routine. This is a snapshot of the land of the market at a particular moment: 1316 UTC on 28 January 2018. The bit at the bottom, with the white line indicating information technology, is the terminal-traded price as of this moment.
This is a chart of the market makers — the people putting upwardly offers to buy or sell. On the left there's a pile of people who desire to purchase BTC from you, at what price they'll pay. On the correct are a pile who want to sell BTC to you, at what price they'll have.
(The term "market place maker" is a bit different in security trading, only the crypto usage is oftentimes just "whoever puts up an offer.")
The lines show how many BTC would need to be bought or sold to accomplish a given price point.
The green line (left) is cumulative "buy" orders beneath the electric current cost — if you take coins to sell, they will purchase them from you lot. The red line (right) is cumulative "sell" orders above that price — if you desire to buy coins, they will sell them to you.
Orders are processed in order of price going downwardly for purchase orders, in club of price going upwards for sell orders. If yous want to sell 10 BTC and there are buy orders for 2 BTC at $11,300, 3 BTC at $11,295 and half-dozen.5 BTC at $11,290, you'll fulfill all of the first 2 and well-nigh of the last, and you'll receive $112,935 — minus the substitution's trading fee, since GDAX charges the marketplace taker (that's y'all).
On the GDAX chart, y'all can also come across vertical lines — these are "buy walls" and "sell walls". For the toll to keep going up or down through that wall, the order has to be fully satisfied. e.1000., in the in a higher place nautical chart, 150 BTC of sales would drop the cost to $11,200, but it wouldn't become lower until the 50 BTC order at that price had been filled.
In normal security or article trading, the order volume — the fix of all the buy and sell orders — has a fair bit of depth. So the market is reasonably robust and the order book isn't thin and it'southward difficult to manipulate it very much.
But this is crypto. So the guild books are super-thin, separated into i order book per commutation 'cos the market place's structure is approximately the stupidest possible … and so the toll is super-manipulable!
Spoofing
Look again at that GDAX chart. There's a lot of information in there, in a compact at-a-glance format. You may get the feeling "wow, more people want to buy, Bitcoin's on its style upwardly. Maybe I should buy!"
But what if some of those orders … aren't real? What if someone places some great large walls … simply the orders are withdrawn as soon as the toll gets anywhere near them?
This is called "spoofing" — where yous put in orders you have no intention of letting get through, to dispense other traders' perceptions, and hence the market.
Spoofing is illegal in the US since the 2010 Dodd-Frank act — the precise wording (§747) is "bidding or offering with intent to cancel before execution." For case, the CFTC merely fined Deutsche Bank and HSBC for doing this in US futures markets.
It'southward non frequently prosecuted, because doing so involves proving intent. Quite a lot of people — and loftier-frequency trading algorithms — put in orders they and so withdraw.
Of grade, like other market manipulations, it's endemic in cryptos because that's what "unregulated" means in exercise. Bitfinex'ed'south post "Meet Spoofy" shows 1 apparent bot, Spoofy, in action. The crash a couple of weeks ago involved a lot of spoofed walls.
Margin trading
There aren't enough USDT to merely straight-up purchase BTC — or place spoof orders — to prop up the price. Only they tin can be used to fuel margin trading.
Margin trading is borrowing (from your broker or, in cryptos, the exchange) to multiply the upshot of your trading — then rather than merely having $100, you can borrow and merchandise with $200, using the $100 equally collateral. If your trade pays off, you lot've washed actually well!
If your trade doesn't pay off, or even if the toll dips plenty that it looks similar it won't, the lender forces y'all to liquidate the whole position and pay them dorsum immediately, and you lose your collateral. The ratio of collateral to amount borrowed determines how far the market place tin can dip from the price you bought in at before your position is liquidated.
In crypto, margin traders have a habit of borrowing a lot on margin. 5× or x× is non uncommon. Bitmex offers upward to 100× margin trading.
(It's absolutely nuts to margin-merchandise cryptos, considering they're so volatile, merely tell crypto gamblers that.)
So a small corporeality of USDT lent for margin trading can allow the creation of a large order.
(This is fine — as long as tethers are real.)
Which may not exist when the price gets at that place.
(This is not so fine, either way.)
Conclusion
Tether has dipped earlier — 1 USDT was 0.91 USD in Apr 2017, around the time the present massive crypto bubble was starting — and retrieve that, per chapter 8 of the volume, this chimera was started by Bitfinex and Tether losing their U.s. dollar cyberbanking — and it'southward peaked at 1.07 USD in contempo times. And more than depth is showing up.
Merely last nighttime, and today's spread betwixt USD and USDT exchanges, looks very like a worried market, trying to go out.
Source: https://davidgerard.co.uk/blockchain/2018/01/28/how-to-read-a-crypto-market-depth-chart-and-why-people-went-holy-crap-at-the-overnight-tether-chart/
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