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HOW You Trade Crypto MATTERS

Dave Weisberger

Dave Weisberger

February 03, 2023

CoinRoutes saves traders a lot of money…

Imagine the following scenario:  

You settle into your airplane seat and start to try and relax.  Then, the captain starts to speak over the plane wide intercom:

Good morning everyone.  It’s going to be a beautiful day to fly today.  Our projected flight time is 3 hours, but I don’t trust all this modern avionic equipment.   So, I am going to turn it all off and fly the plane by hand without any of it.   To be sure, I’ve locked the cockpit door to keep the copilots and alternates from interfering with my plan.   Don’t worry, I’ve flown this route many times, so you’re in good hands…

I don’t know about you, but if I heard that and saw the copilots banging on the cockpit door, I’d do everything I could to get off that plane before take-off…

Why am I telling such an absurd story?  

Simple, trading large amounts of crypto manually using an exchange provided user interface or using TradFi technology to trade crypto is equally insane.  Sure, you won’t die, but you will waste money.  A lot of it…

Saving our clients money while trading is why we founded CoinRoutes in 2017.  Since then, we have attracted many of the largest crypto trading firms who use our “SmartPost” algorithmic suite to save money.   These firms, who collectively have traded well over $100 billion in notional value using CoinRoutes, have saved well over $50 million in trading fees & market impact costs, despite those clients qualifying for some of the most aggressive fee tiers at the major exchanges.  Firms or active traders that pay higher fee tiers would, of course, experience dramatically higher savings.  (Editor’s note — CoinRoutes also provides substantial infrastructure savings to firms compared to building/hosting their own, but that is not the subject of this post.)  

The $50 million in savings we estimated is likely a very conservative estimate, as we are using data from clients who pay very low fees.  In addition, CoinRoutes is very precise  about how we calculate the benchmarks our trades are measured against.  Our system processes, in real-time, all of the bids, offers and trades from all the major exchanges and uses that data to calculate five benchmarks:

  1. 1. Far Side — This uses the real time, consolidated best bid and offer (CBBO) from all the exchanges used by our algorithm to price orders, to calculate, before fees, the cost to take liquidity.  As it uses the top-of-book, most of the time the available liquidity is much smaller than the order, meaning that it is very hard to match this benchmark even without considering the fees charged to “take” liquidity.

  2. 2. Mid — This uses the middle of the CBBO without fees, which is commonly referred to as “arrival price” by portfolio managers and strategists, is an impossible benchmark to meet without slippage.   (Editor’s Note — Those who claim they can trade without slippage to the arrival price are not telling the truth;  most likely they are fabricating data or overselling their capabilities)

  3. 3. Cost Calculator — CoinRoutes takes a snapshot of the full order books of all major exchanges at the time the order is sent and calculates the cost to OPTIMALLY take the best priced available liquidity.  This is the price that would be achieved by a perfect smart router IF the client had sufficient assets available to trade on all of the major exchanges.  

  4. 4. Interval VWAP — This takes all the reported trades from each of the major exchanges to calculate a volume weighted average price (without fees) for the time period the order was active.   

  5. 5. Pre Order VWAP — This takes all the reported trades from each of the major exchanges from the period of 5 minutes before the order to calculate a volume weighted average price without fees.

CoinRoutes Performance

For the past 6 months, we calculated the performance of our algorithms weekly for all orders in both Bitcoin and Ethereum denominated in dollars.  Stripping out outliers with more than 3% outperformance, those numbers are in the following table, but the highlights are outperformance vs our “cost calculator” by over 5.1 basis points for Bitcoin and over 6.2 basis points for Ethereum.   In addition, slippage vs the Order VWAP was under 2/10ths of a basis point for Bitcoin and under 1.1 basis points for Ethereum.  Considering this is net of fees paid, it shows that CoinRoutes is saving more than the fees paid to exchanges for our clients.  

Product

Far Side

Mid

Order VWAP

Prev VWAP

Cost Calculator

Bitcoin

-0.03998%

-0.05781%

-0.07593%

-0.00169%

0.05149%

Ethereum

-0.03536%

-0.05645%

-0.08999%

-0.01090%

0.06256%

As the TV Knife Salesman says “but there’s more”

In addition, we also calculated the savings using CoinRoutes compared to single exchanges.  That analysis compares optimal trading on Coinbase Pro to routing that uses Coinbase, Bitstamp and Kraken.  It shows that using those 3 exchanges provides an average savings of an additional 4 basis points for Bitcoin and Ethereum.  This number can be even higher for altcoins.  

These numbers add up fast.   Consider traders who make the middle tier on Coinbase for example.  If one trades an average of $3 million per month to make that tier, using CoinRoutes would save the client an average of over $4000 per month or almost $50,000 per year.  That is after paying our software fees, which are a small fraction of the savings.

Over the years, we have heard many traders tell us that they don’t mind paying high costs to trade crypto since it is going to “the moon.”   After the brutal year we all experienced in 2022, I suspect that traders with such sentiments are becoming increasingly rare.  To bring it back to the analogy that started this post, trading manually on single exchanges when automated trading tools such as CoinRoutes can be used, is, quite simply, as crazy as turning off the modern avionics when flying a jet… 

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