Questions about market cap vs. market depth

[BTCforJoe]

So one of my company's products shows data based on market depth as opposed to market cap. I figured that this board is the perfect one to ask this question...



I'm used to always seeing Bitcoin at the top of charts based on its market cap, but this site shows Ethereum ranked at the top based on its Buy Pressure. Honestly, I'm embarrassed to ask my colleagues (I'm not in the same product department as the one this site is in), but can someone ELI5 (explain like I'm 5) in layman's terms why market depth is more important than market cap when it comes to trading?

Thanks in advance! I'm looking to get more knowledge in trading crypto, so you'll start to see a lot more of me on this board. Cheers!

(Let me know if I should move this to Beginners & Help)

[1715468858]

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[mk4]

I'm not sure if I can answer this well, but I guess I'll try.

I'm not sure if market depth 'better' per se, it's probably just a better counter to use when trading. Market depth is pretty much calculated based on the offers on the order book that  aren't directly impacting the price. Traders can use market depth to have an idea on how volatile or non-volatile a certain asset is. As if a certain asset has a strong market depth, big buy or sell offers are less likely to affect the price. This is just a significantly more accurate and relevant statistic than marketcap(in my opinion), which is just price * supply.

https://www.businessinsider.com/why-its-inaccurate-to-measure-cryptocurrencies-by-their-market-caps-2018-1


EDIT: I don't think I really answered your question well, but what the heck. I'm leaving this here just for the people who have no idea on what market depth is.

[figmentofmyass]

i dug around the site a bit. they seem to hide the sources for their data.

it's obvious they are cherry-picking data, omitting many dozens of exchanges and markets. the idea that ETH has a deeper market than BTC is completely laughable. and they're saying that XRP has 91% of the market depth of BTC? over the top ridiculous.

also, basing this type of assessment on order books alone is neglecting to account for all OTC and p2p trading.

[Wind_FURY]

OP, market cap without "market depth", also known as liquidity, does not mean anything. Anyone can premine 1 billion coins and price them to $10.00 for each coin, and airdrop them to the coin's "community". But without the liquidity required to support the market, it will consequently crash to near zero.

[figmentofmyass]

OP, market cap without "market depth", also known as liquidity, does not mean anything. Anyone can premine 1 billion coins and price them to $10.00 for each coin, and airdrop them to the coin's "community". But without the liquidity required to support the market, it will consequently crash to near zero.

that doesn't mean market depth is ideal for ranking coins. my friends and i used to play with the order books back in the day just for kicks, just to fuck with peoples' heads with mega-walls on bitcoinity. with today's leverage, it's too easy to manipulate order books (even long term) without ever having the intention to get filled. exchanges have zero rules about removing posted orders.

the only things that truly matter are price and volume. price reflects supply and demand (perhaps inefficiently) at any given moment. volume reflects the actual liquidity traded---much more useful than order books, which can change at any time.

i think it would be interesting to see a more comprehensive measure of market depth. unfortunately, the site in the OP is closed-source and obviously biased towards altcoins.

[Wind_FURY]

OP, market cap without "market depth", also known as liquidity, does not mean anything. Anyone can premine 1 billion coins and price them to $10.00 for each coin, and airdrop them to the coin's "community". But without the liquidity required to support the market, it will consequently crash to near zero.

that doesn't mean market depth is ideal for ranking coins. my friends and i used to play with the order books back in the day just for kicks, just to fuck with peoples' heads with mega-walls on bitcoinity. with today's leverage, it's too easy to manipulate order books (even long term) without ever having the intention to get filled. exchanges have zero rules about removing posted orders.

I didn't say that. What I said was you should check the coin's liquidity to know if a coin's market cap is sustainable.

the only things that truly matter are price and volume. price reflects supply and demand (perhaps inefficiently) at any given moment. volume reflects the actual liquidity traded---much more useful than order books, which can change at any time.

Tell me if I am wrong, liquidity = market depth = order book, right?

[figmentofmyass]

the only things that truly matter are price and volume. price reflects supply and demand (perhaps inefficiently) at any given moment. volume reflects the actual liquidity traded---much more useful than order books, which can change at any time.

Tell me if I am wrong, liquidity = market depth = order book, right?

that tells you about order book liquidity.

actual volume traded is a much better measure of overall market liquidity---the amount of coins that can actually be bought or sold. this is particularly true because so much bitcoin volume is algo trading now. for example, TWAP orders are common, but they obviously aren't fully reflected in the order books. that's actually the point, as with dark/hidden orders.

[Wind_FURY]

But if the visible bids and sells in the orderbook are high, then we can assume that liquidity is good, plus counting on the liquidity provided by the hidden orders. Which beings me back to the point that the market cap would matter more if sustained by more than enough liquidity.

[BTCforJoe]

i dug around the site a bit. they seem to hide the sources for their data.

it's obvious they are cherry-picking data, omitting many dozens of exchanges and markets. the idea that ETH has a deeper market than BTC is completely laughable. and they're saying that XRP has 91% of the market depth of BTC? over the top ridiculous.

also, basing this type of assessment on order books alone is neglecting to account for all OTC and p2p trading.

They seem to be displaying the rank of the coins based on the buy pressure. If you click on an individual coin, you can see the sources of data from the exchanges that they're on from the chart at the bottom of the page. The site seems to be polling data from the exchanges, as the exchange prices are reflected on the coin's page.

I gather, from your responses, that when you all are trading, that you look at the market cap data vs. market depth data? Is this an accurate assessment? I'm not a trader, so I'm just trying to figure out what is the most important factor when considering a high-volume trade.