Whats a Buy/Sell Wall in Bitcoin or Ethereum?

There is a lot of action in Bitcoin and Ethereum trading – intra-day volatility can be huge. One thing that is frequent in crytpo trading is buy or sell “walls”. I great example happened today on the GDAX exchange.

You can see at the bottom  section of the chart below you have an aggregate of buy and sell volume at various prices. On the left in green is the amount in total that people are willing to buy at various prices. On the right in red is the amount sellers are wishing to unload. As you can see there is a massive amount of Ethereum for sale around $230 ETHUSD.  This is almost 8,000 ETH units for sale at $230/ETH which is roughly $1.8 million USD.

ETH SELL WALL
Ethereum Sell Wall on GDAX Exchange

For the price of Ethereum to move over $230 there needs to either be very strong buying demand to “tear down that wall”, or the large seller(s) need to pull back.

Buy and sell “walls” is something you will see frequently in crypto trading.

Gemini Exchange Auction

The Gemini Bitcoin Ethereum Exchange has an interesting Auction mechanism which deserves a look for active traders.

About Gemini Exchange

Gemini is a US exchange started by the Winklevoss twins of Facebook fame. Its a regulated US exchange which offers a bit more security as a result. The Winklevoss are also working on a Bitcoin ETF which is pending SEC approval.

The Gemini Exchange Auction

Here is how Gemini describes their Auction:

In addition to the continuous trading order book, each of the order matching engines conducts two Auctions (or “crosses”) every day, one at 4:00 p.m. Eastern Time (20:00 UTC during EDT and 21:00 UTC during EST) and one at 7:00 p.m. Singapore Time and Hong Kong Time (20:00 JST, 11:00 UTC). This provides an opportunity for both buyers and sellers to trade in an instant of elevated liquidity and price discovery. All active orders (including resting limit and MOC orders) may interact with the Auction and influence the final auction price, which is determined by finding the price at which the greatest aggregate buy demand and sell demand are fulfilled. All participating, eligible orders are fulfilled at the final auction price. (We use a mechanism similar to the New York Stock Exchange’s Arca marketplace, Nasdaq, Bats, and other large stock exchanges throughout Europe and Asia, which is sometimes called Walrasian equilibrium.)

In the stock trading world Auctions are useful because it allows you to trade “size” (aka large orders) without (hopefully) having much impact on the stock price. If you are a large hedge fund and need to offload 5 million shares you can really push the price of a stock down, especially if you are a large part of the volume. Theoretically the auction might allow you to cross (aka match in the auction) with a large buyer without having a major impact on the price of the stock.

There are a bunch of stats on the Gemini Auction here.

On the stats page, there are a few interesting things. There are about 340 data points and the average “Absolute Difference” between the midpoint on the “continuous market” (aka normal price) vs where the Auction Matched price is 0.27%. With Bitcoin at ~$2,500 thats about $7.  The highest spread though was 3.83%, with a standard deviation of 0.41%. Remember, these are ABSOLUTE numbers, so you don’t know if the auction price is higher or lower.

A real statistician would rip my math apart here, but basically this says that you have a 66% chance of achieving a  price thats almost 1/2 a percent from where the continuous market is trading.

For the average joe, this isn’t worth much. The price of Bitcoin or Ethereum can move 1/2% in a few seconds so you’re opportunity to lock in an arbitrage seems a random. But, if you are a market maker or an arbitrager using an API to trade instantly its pretty interesting. Not only could I use the difference in price between the “continuous” exchange on Gemini and the Auction mechanism, but I could also arbitrage between any one of the other exchanges like GDAX, kraken, OKCoin, etc.