Order-Book Depth Market Making in Early Bitcoin Markets

Summary

This account describes a simple Bitcoin market-making method that sets buy and sell limits from cumulative order-book depth. It scans bids and asks until each side reaches a chosen quantity, then places quotes just inside those levels. If the resulting spread is too narrow, it quotes farther from the market. The strategy repeatedly cancels and replaces orders, sizing each side from available cash or coins. The author also discusses making the depth thresholds asymmetric to favor accumulating either Bitcoin or cash.

The author reports operating an early version from 2014 until fees were introduced, with favorable account growth and relatively few losing periods, and points to account curves as evidence. These are retrospective, self-reported results from a market with different competition and fee conditions, not a controlled test. The approach depends on order-book depth and frequent fills; it does not use historical signals, impose a per-trade loss limit, or manage inventory tightly in its simplest form. The article acknowledges that transaction fees and changing market conditions undermine the original edge.

Key ideas

• The strategy derives limit prices from cumulative bid and ask depth rather than historical price signals.
• It refreshes quotes frequently and sizes orders using the account’s available currency and Bitcoin.
• Asymmetric depth thresholds can shift the strategy toward accumulating Bitcoin or cash.
• The author reports strong historical results, but the evidence is anecdotal and tied to early market conditions.
• Fees, inventory imbalances, and prolonged directional moves are important limitations.

Tags

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