the interexchange BTC spread is much smaller than it used to be couple of days, or weeks ago
Is this because a limited volatility(volume) today?
Partly. The instantaneous spread isn't nearly as wild anymore, which is a function of volatility. The volatility may be the same at two exchanges, but volatility, to a degree, is expressed as noise. With my background, I can't help but see it as a system with a lot of resonance points and an underlying "DC bias" (the true value at any given time). The system is always moving, charging, discharging, around that point, and there appears to be at least two primary modes of noise introduction and perhaps one secondary. The secondary noise source is pretty much not a function of any controllable activity and derives from the other two. The lower-frequency noise is mostly deterministic and is human attempts to find and close in on the true DC level. The high-frequency noise is less deterministic and is created from essentially harmonic resonances developed from the other sources and the market characteristics.
Tl;dr — yes, but I want to give the caveat that volatility can reasonably be assumed to be lower than would be normal because of the holidays.
The spread is just a manifestation of the friction of arbitrage, which comes from dissymmetry between trade denominations and regimes. The friction comes from trade fees, and liquidity. (Liquidity of course has a cost in time and/or slippage cost). In a frictionless market, the spread is zero. Even a market where friction was equal between all regimes, the spread would be zero, possibly excluding resonances.
Not only are less participants actively chasing the DC point, but you can't if you wanted to. Most people are limited in ability to add fiat to the exchanges due to banking holidays and weekends, etc. My perspective on this was confirmed by trading activity on Dec. 26, and also partly by the volume of LTC trading on the 25th. (LTC may trade as "USD/LTC" and "CNY/LTC" etc. but that is almost all within the exchanges — I track actual fiat exchanged as 「CNY'」 and 「USD'」etc. This is necessary because the friction of exchange is very different between bank-side and IRL fiat (actually I track those separately too) and exchange-side fiat. Just as off-chain BTC trades are very different from in-chain.
Fiat is exchanged for BTC the first time. After that the fiat is virtual until repatriated out of the exchange. So almost all trade is off-chain and outside the bank and IRL regime. So, when there is need but not ability for there to be price correction between the regimes, pressure builds, resulting in what you see on the 26th. Undoubtedly, this is happening now as well. Also, because the cost of transactions in the exchange regime is as a percentage of value, this will result in a gradual pulldown of the price until more is added, either as more BTC' or USD' or what have you, sent to exchanges. Since we see that almost all BTC and
LTC exists either on-exchange or in cold storage, not much time in between, and because the cryptos can be added 24/7, this cost delta is denominated in fiat and can only be corrected by USD' or CNY' etc.
Also, more in general, the volatility of the underlying DC point seems to be decreasing too, but that's not a revelatory idea. Large slopes create even larger volatility. The slope has leveled greatly and the harmonics have dissipated a lot. What new offsets will be injected Monday, when the news since Thursday is permitted to express itself with fiat injections, remains to be seen. Traditionally, it's upward.
