Why Is the Bid-Offer Spread Often Wider for Low-Cap Altcoins Compared to Highly Liquid Assets like Bitcoin Futures?
The primary reason is lower market liquidity. Low-cap altcoins have fewer active buyers and sellers, resulting in a shallow order book.
A shallow book means that a large trade can significantly move the price (high price impact), increasing the market maker's risk. Bitcoin futures, being highly liquid and standardized, have deep order books and intense competition, which naturally compresses the spread.
Glossar
Wider Spreads
Volatility ⎊ In cryptocurrency derivatives, wider spreads represent an amplified differential between bid and ask prices, reflecting heightened uncertainty and reduced liquidity.
Altcoins
Asset ⎊ Altcoins are defined as all digital currencies operating on a decentralized ledger protocol other than Bitcoin, representing a distinct asset class within the crypto market.
Bitcoin Futures
Derivation ⎊ Bitcoin Futures represent standardized forward contracts obligating the holder to buy or sell Bitcoin at a predetermined price on a specified future date, functioning as a derivative instrument whose value is derived from the underlying spot price of Bitcoin.
Capital Efficiency
Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to the capital at risk, demanding strategic asset allocation and precise risk parameterization.
Highly Liquid Assets
Volatility ⎊ Highly liquid assets, within cryptocurrency and derivatives markets, demonstrate minimal price impact from individual trades, facilitating efficient price discovery and reduced execution costs.