The Significance of Market Depth in Cryptocurrency Trading
Understanding market depth is crucial for cryptocurrency traders. It provides insights into the liquidity of a particular cryptocurrency and the health of its order book in terms of handling a certain number of orders.
Ripple’s XRP, one of the most actively traded altcoins, boasts a substantial daily trading volume across major cryptocurrency exchanges. Therefore, it is worth examining the amount of capital required to influence its price.
Let’s begin with Binance, the world’s leading cryptocurrency exchange. To increase the price of XRP by 2%, a market order of $1.9 million is needed. Conversely, to decrease the price by the same percentage, approximately $3.3 million worth of XRP needs to be sold.
On Coinbase, the second-largest exchange, the price of XRP can be increased by 2% with an investment of $650K, while reducing it requires selling just under $1 million worth of XRP.
The fact that there is a greater market depth on the sell side indicates that more orders are placed to accumulate XRP at a 2% lower price. Conversely, there are fewer sellers willing to sell XRP at a 2% higher price.
In the foreign market of KRW, Bithumb, the leading Korean platform, demonstrates the highest liquidity and market depth. Here, increasing the price of XRP by 2% requires an investment of $390,000, while decreasing it necessitates approximately $500K. This suggests that there is a significant sell-side market depth on both exchanges, indicating a higher number of orders ready to absorb substantial selling pressure.
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