The volatility of bitcoin in the 30-day period decreased to 20%. This may be due to an increase in the number of high-frequency trading players.
According to the analytical service IntoTheBlock, the volatility of the first cryptocurrency over the past 30 days decreased to 25.75%. According to Paolo Ardoino, CTO at Bitfinex crypto exchange, this was due to the increase in the number of players engaged in high-frequency trading (HFT). Ardoino revealed that high-frequency trading accounts for 80%-90% of the trading volume on Bitfinex in the leading pairs (BTC/USD and ETH/USD).
“In crypto, we are back to the old days of HFT before it became the zero-sum game that it has become today,” said he. “In crypto HFT firms can make a lot of money deploying relatively straightforward plays, such as cross-exchange arbitrage and exploiting the spread between one exchange and another.”
For high-frequency trading, crypto market players often use algorithmic trading programs (trading bots) that follow popular strategies such as statistical arbitrage or volatility arbitrage.
Another factor that plays in favor of reduced bitcoin volatility is the growth of liquidity in the market. Moreover, he also linked the growth of liquidity with an increase in HFT trades.
“The increase in HFT activities adds more liquidity to crypto exchanges, provides sufficient orders for both sides of the order book, and increases market efficiency.”
James Banister, CEO, Market Synergy, a Zug-based infrastructure provider, agrees with Ardoino’s opinion. He believes that the long period of price consolidation and low volatility in bitcoin in recent months is a result of the growing presence of high-frequency trading (HFT) firms.
Tarun Chitru, founder and CEO of Gauntlet crypto network modeling platform, said in an interview that among the new Gaunlet users there are many former participants in the traditional market who were engaged in high-frequency trading, but were disappointed with the current yields. In cryptocurrencies, they are attracted by the higher profitability, which is possible due to the wide opportunities for inter-exchange arbitrage and high volatility of cryptocurrencies.