Spreads across digital asset exchanges soared during March as anxiety gripped global markets, according to data compiled by cryptocurrency over-the-counter trading firm B2C2.
The difference between the price at which a trader is willing to buy an asset and the price for which they are willing to sell it, the bid-ask spread tends to widen during periods of increased volatility. That spread, in a sense, is the transaction cost of making a trade.
As bitcoin's price collapsed 50% on Thursday March 12, spreads on B2C2's benchmark exchange widened by 200 basis points, whereas another exchange saw spreads jump to 500 basis points.
"Put differently, that's a 5% difference in the price where an investor could buy on that exchange and the price where an investor could sell. On Friday, the exchange bid-offer spread breached 10% on one of the venues," B2C2 said.
"While B2C2 did widen in the face of high uncertainty, prices remained tighter than every other exchange for the vast majority of that 48 hour period," the note added.
While the point of the memo is clearly to serve as good marketing for the U.K.-based trading firm, it also offers an interesting look into market dynamics during unprecedented periods of volatility.
Indeed, the widening of spreads is plaguing all markets as coronavirus-tied fears continue to rattle them. Even as the Federal Reserve pumped billions of dollars into bond markets, traders reported an increase in the gap between the bid and ask price, according to a Reuters from March 19.
Still, as B2C2 alludes, such bouts of volatility can be profitable for exchanges and trading platforms that sit in the middle, capturing the spread.
"Fortunes are made and lost in such critical times," the firm noted.