Wow, looking at the order book of bitstamp [1] through the eyes of someone who lives in the world of market microstructure is eye opening:)
There are huge holes everywhere in the order book and the liquidity at each offering level seems to be completely without reason.
I just spent 20 minutes applying the sort of algorithms that'd we'd normally run on each stock to make markets in it and it can't detect any real patterns or justification for the bid/ask levels.
Is this just a case of everyone in the bitcoin market being "unsophisticated" in the quantitative sense? or is there some new form of market micro structure being created here?
Thoughts??
EDIT
For people asking about what you'd expect to see:
1) After the initial price level, you'd generally expect the next 10 or so price levels to be pretty tight. In the bitcoin case some of the spreads between price levels are larger than the bid/ask spread.
The price levels don't appear to have any logical basis behind why they are placed where they are.
2) volume at each price level. Similarly to above the volume at each price level doesn't appear to have any discernible pattern. Typically volumes would increase at each price level, up to a point, as more people join the market at each price level.
They don't break out a level 3 quote( order book by order, as opposed to price) so you can't really see how many orders are backing up each price level but given how small the volume of many of the price level are you can probably assume its only one person/order at most levels.
[1] https://www.bitstamp.net/market/order_book/
There are huge holes everywhere in the order book and the liquidity at each offering level seems to be completely without reason.
I just spent 20 minutes applying the sort of algorithms that'd we'd normally run on each stock to make markets in it and it can't detect any real patterns or justification for the bid/ask levels.
Is this just a case of everyone in the bitcoin market being "unsophisticated" in the quantitative sense? or is there some new form of market micro structure being created here?
Thoughts??
EDIT For people asking about what you'd expect to see:
1) After the initial price level, you'd generally expect the next 10 or so price levels to be pretty tight. In the bitcoin case some of the spreads between price levels are larger than the bid/ask spread.
The price levels don't appear to have any logical basis behind why they are placed where they are.
2) volume at each price level. Similarly to above the volume at each price level doesn't appear to have any discernible pattern. Typically volumes would increase at each price level, up to a point, as more people join the market at each price level.
They don't break out a level 3 quote( order book by order, as opposed to price) so you can't really see how many orders are backing up each price level but given how small the volume of many of the price level are you can probably assume its only one person/order at most levels.
[1] https://www.bitstamp.net/market/order_book/