Bitcoin Order-Book Market Making with Depth-Based Quotes

Summary

This article describes a Bitcoin market-making approach that uses current order-book depth to set bid and ask quotes. It sums displayed quantity through the book to chosen depth levels, places quotes just inside those levels, and widens them when the resulting spread is below a preset threshold. Each cycle cancels and replaces outstanding orders, with order size constrained by available cash or coin. The author characterizes it as a simple, inventory-light prototype and notes that later versions used position groups.

The author reports historical operation beginning in 2014 and shows asset curves, while attributing earlier success partly to a less competitive, fee-free trading environment. The approach relies on short-term price recovery after aggressive trades and makes no provision for stop losses or robust inventory limits in the shared version. Its historical results are self-reported and cannot be assumed to transfer to current markets, where fees, competition, liquidity, and adverse selection can change the outcome.

Key ideas

• The strategy derives quotes from cumulative bid and ask depth in the live order book.
• It places orders near selected depth levels and widens quotes when the spread is too narrow.
• Each cycle cancels and replaces orders, sizing them from available account balances.
• The shared version has limited position management and no explicit stop-loss process.
• The reported historical performance is tied to market conditions that included low competition and no trading fees.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.