Order Book Depth Market Making in Early Bitcoin Markets

Summary

This article describes a simple Bitcoin limit-order strategy that estimates prices from cumulative depth in the order book. It scans bid and ask levels until each side reaches a chosen quantity, then places orders slightly inside those levels. If the resulting spread is too narrow, it moves quotes farther from the market. On each loop, it cancels existing orders, checks available balances, and submits buy and sell orders where funds or coins permit.

The author reports that an early version ran from 2014 until the exchange introduced fees, and describes substantial historical account growth. These are author-reported outcomes, not independently documented backtest results, and the article explicitly says the old parameters and approach do not fit current markets. Its explanation highlights the strategy's dependence on order book depth, execution probabilities, available inventory, and low transaction costs. It also notes that one-sided quoting can leave opportunities unused and that the simple version lacks position management and stop losses.

Key ideas

• The strategy places limit orders using cumulative quantities across order book levels to estimate quote prices.
• It widens quotes when the estimated spread falls below a configured threshold.
• Each loop cancels and refreshes orders according to available cash and coin balances.
• The author reports historical gains in an early Bitcoin market, but provides no independent verification.
• The approach is highly sensitive to fees, competition, inventory limits, and changing market conditions.

Tags

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