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Bitcoin first mover advantage has led to large network effects. But what are the real advantages of those effects?

Altcoin could soon be turning around after a significant rally aginst Bitcoin took place right under investors’ noses. Is this another sucker’s rally, or is Altcoins about to finally stage a strong, full-scale recovery and kick off an Altcoin season?

What is Slippage?

Slippage is a side effect of a lack of liquidity. It’s the difference between the expected price of an exchange at the current market rate and the price at which the trade happens. For example, someone may want to sell $1 million worth of a particular cryptocurrency on an exchange. Still, if that individual wants to make the trade quickly, they may have to sell part of their stash at lower than the market rate because there are simply not enough buyers available at the last trade price.

bitcoin-first-mover-advantage-has-led-to-large-network-effects-but-what-are-the-real-advantages-of-those-effects

Many cryptocurrencies are easy to transfer around the world in a matter of seconds, but the vast majority of them are also extremely illiquid. As the data from Cryptowatch in the chart above shows, Bitcoin is by far the most liquid cryptocurrency on the market, notably when Tether is excluded.

Liquidity and slippage are two other factors that deserve attention in the Bitcoin market?

Liquidity is effectively a measurement of the ease at which someone can quickly obtain or sell an asset without causing significant changes in that particular asset’s price. If an asset can be sold promptly or exchanged for goods or services without having much of an effect on the market price, then that would be considered a liquid asset. Traditional fiat currency (in cash form) is the perfect example of an extremely liquid asset, as it can be used to purchase goods and services directly. A home would be an excellent example of an illiquid asset, as it can take months to find a buyer who is willing to pay the market price for it.

Ether is the only currency that is not a stablecoin to reach eight digits in liquid Bids figures. In terms of coins with Liquid Value worth more than $ 5 million, these are just Litecoin, XRP, EOS, and Bitcoin Cash. Cryptowatch defines Liquid Bids as the sum of all bid orders within 100 basis points of the best bid across all markets monitored by the platform. Liquid Asks is the same concept, applied to the other side of the order book. In other words, this data represents the volume of bookkeeping transactions within 1% of the market price of each cryptocurrency.

If you are speculating on the price of a cryptocurrency asset, then you need to ensure that the currency has enough liquidity for you to leave the market when you decide to do so. Most cryptocurrency assets are highly liquid, which means it is difficult to exit your position without slipping.

The additional difficulties associated with moving in and out of illiquid altcoins make them relatively difficult to use as a store of value. Do you hold amount if you cannot transfer an asset elsewhere without generating a high level of slip?

This is not a theoretical problem. The effects of devaluation appear in various cryptocurrency-related financial services.

In 2017, BitPesa CEO Elizabeth Rossiello noted that:

“I have to be practical about integrating new cryptocurrencies into my company, which has been providing Bitcoin liquidity to individuals and institutions in Africa since 2013.”

Rossiello added:

“If you show me that everybody is using [the coin] and it’s super liquid and there’s no slippage and I have brokers in six of my markets and they’re going to give me liquidity and they’re going to give me a line of credit or whatever it is — let’s do it.”

In terms of past altcoin usage by BitPesa, Rossiello noted that the company used ether, which is the underlying token of the Ethereum network, during a recent hard fork attempt on Bitcoin. The BitPesa CEO added that she’s excited about ether’s growth in terms of liquidity and brokers as it enables a new option for their platform.

Slippage also appears directly in the fees associated with various cryptocurrency services. For example, the Nexo cryptocurrency lending platform is based on the ratio of loans to their value based on the level of liquidity and price fluctuations associated with a particular asset. Bitcoin deposit users can receive loans worth about 52.7% of their deposits, while Stellar Lumens depositors can only borrow about 17% of their deposit. On the online financial platform Uphold, exchange fees for smaller altcoins, such as the primary attention token or Chainlink, are almost double that of Bitcoin exchanges.

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