PODCAST: Kaiko's Ambre Soubiran on Bitcoin's 'Intrinsic Value'

“One of the things I was hearing all the time when I was in the banking world was ‘OK, but this bitcoin thing, it doesn't have any intrinsic value,’” said Ambre Soubiran, CEO of cryptocurrency market-data startup Kaiko.

“And this is something to which I obviously completely disagree,” she continued. “How can you say that having a system that enables permissionless transference and a decentralized and secure way to digitally transfer ownership [doesn’t have value]? Just that system and the fact that it works and that it has been working for 10 years has value – and that's the intrinsic value in my eyes.”

Soubiran spoke with CoinDesk for the latest episode of Bitcoin Macro, a pop-up podcast series featuring the speakers and themes of CoinDesk's upcoming Invest: NYC conference on Tuesday, Nov. 12.

The event will explore bitcoin’s role in the financial system as it finds its place in the global macro community. No longer written off as some ignorable niche, more people are asking: Is bitcoin a macro asset? Is it a safe-haven asset? How will it perform in the next recession?

In this episode of Bitcoin Macro

, CoinDesk’s head of strategy, Nolan Bauerle, talks with Soubiran about:

• The “macro” origins of bitcoin.
• The shifts in the bitcoin narrative over time.
• Why the ICO boom was a seminal moment for external markets to gain more interest in the cryptocurrency space.
• Why the role of bitcoin as a safe haven is contextual to local politics and economics.
• Why HODLing behavior shows the promise of bitcoin as a future safe haven.
• The immediate-term risks to bitcoin in the case of a global recession.
• What order-book data suggests about the state of the markets.

Listen to the podcast here or read the whole transcript below.

Nolan Bauerle: (00:09)

Welcome to Bitcoin Macro, a pop-up podcast produced as part of the CoinDesk Invest: New York conference in November. I'm your host, Nolan Bauerle. Both the podcast and the event explore the intersection of bitcoin and the global macroeconomy with perspectives from some of the leading thinkers in finance, crypto and beyond.

Nolan Bauerle: (00:34)

Welcome again to our pop-up podcast around bitcoin in the world today. Today I'm joined by Ambre Soubiran from Kaiko. Ambre, [foreign language 00:00:44] we could do it in French, but I'd say today to make sure that our audience is as wide as possible, we'll keep it all in English. So welcome from Paris.

Ambre Soubiran: (00:55)

Thanks, Nolan. Thank you very much.

Nolan Bauerle: (00:57)

So great to have you here and you'll be the last person that we'll be recording around this series of speakers and contributors to our session here. And you'll be the first international person. So the first person to bring an international flair to the bitcoin in the world podcast. We've had mostly Americans until now. I suppose Meltem [Demirors] can count as a non-American, but she is also American so we're not going to go that far.

Ambre Soubiran: (01:24)

All right, well thanks. I'm blessed.

Nolan Bauerle: (01:27)

Well, we're blessed and happy to have you. So let's jump right in Ambre. Right now, of course, we've seen a few big news items around sort of macro turbulence, so a lot of people are talking about it. Definitely changes going on in the global economy, particularly with the American Chinese trade war. Of course, all of the difficulties the European banks are having. And within all this context, of course, you work in the bitcoin world. How do you see bitcoin behaving in this environment? Are you seeing it really transcending what had been something interesting for tech folks to becoming a true macro asset?

Ambre Soubiran: (02:10)

Yep. So I think it's a great question and it's true how seeing how all the different narratives for bitcoins have evolved over time. I think it's really interesting to look at that now from a more macro perspective and say we're seeing more and more institutional drive and institutional demand for bitcoin and the cryptocurrency world, the larger spectrum, but within the context of bitcoin. So let's, I think, take a step back and say, okay, but what is a macro asset? So macro assets are assets such as it can be indices, rates, affects, sovereign bonds, things that are mostly driven by geopolitical and macroeconomic factors. And they generally move with large market moves in a relatively predictable manner. So they have a constant correlation with typical risk assets.

Ambre Soubiran: (03:01)

So if we take that and we say, okay, now what is bitcoin? Initially, it's interesting because it was created as a more technical system, as a technical solution. However, the original context in which it was created was during a quite terrible economic downturn just after the subprime mortgage crisis, which had triggered bank bailouts and had shaken financial markets. So at the time it was really meant to become an alternative to the financial system that created its own crisis in some way. So I think it's interesting because we say it has evolved from the original peer to peer electronic cash system into a financial asset, but it was originally conceived as a reaction to that financial system. So it has definitely evolved over the past 10 years.

Ambre Soubiran: (03:51)

And when I talk to investors and people that are trying to put bitcoin in a box, I think it's interesting, it's like this giant disco ball that is spinning and every time you say, okay, it's a currency and you try to put on it a model or evaluation framework on top of it, it just doesn't work. And then you say, okay, actually it's technology and then you look at it against specific months and it doesn't work again. Okay. Is it a commodity? And there's like, it keeps changing and shifting.

Ambre Soubiran: (04:17)

So the question is, if we look at bitcoin from a financial asset perspective, I think it's important to have sizes and figures in mind because it has been thought of as an alternative to a financial system that was somehow broken. So we could say that it is a decorrelated macro asset. However, it's still way too small. Even if it's big from where we came from it, it grew incredibly fast in 10 years, however, it's still quite small.

Ambre Soubiran: (04:48)

So we're talking about a market cap of 170 billion, whereas gold, and I've been trying to look up actually the most recent market cap of gold. I found everything from five to 11 trillions. But we're talking about a significant difference in orders of magnitude. Same thing with traded volume, right? We're talking about 5 billion over the past 24 hours and gold is somewhere around 250 billion. So we're still talking about significant difference order of magnitudes. And if bitcoin were to be a true macro assets, as in it can be used as a hedged or a derisk for what it is in the traditional system or economy crisis. Well, it's still too small to actually handle that I believe.

Nolan Bauerle: (05:35)

So I'm glad you brought up the gold comparison. For Invest, we were trying to mount a debate, let's say, for the event next week in November 12th and we're going to say, you heard anywhere between, I think you said 6 trillion to 12 trillion.

Ambre Soubiran: (05:52)

Eleven. Yeah.

Nolan Bauerle: (05:52)

Eleven trillion? So I've sort of settled on the 8 trillion and we had actually written the title of the race to 9 trillion. Who's going to be first, bitcoin or gold? To sort of frame it, because if bitcoin continues to behave this way, perhaps it grows much faster.

Ambre Soubiran: (06:12)

Yep. Yeah, absolutely.

Nolan Bauerle: (06:14)

And I'm glad you also brought up that point about making sure that everyone understands the size of this market currently. Because if bitcoin is going to be this uncorrelated, let's say digital jurisdiction gold, that allows something that isn't a nation-state to have the attributes that could trade without the mismanagement or perhaps decisions that are made politically that it could actually grow in this manner and become something totally different. But we're not there yet is what you're saying. We're not there yet.

Ambre Soubiran: (06:45)

Yeah, absolutely. And I think there's something really interesting when you think about this as a financial asset or as a gold, is that indeed, bitcoin is not directly subject to interest rates or to any kind of currency debasement. It's decentralized, so thereby it's not dictated by a specific government. And you cannot have a political force that comes in and creates market volatility. So in some way it is appealing to investors because of this decentralized aspect.

Ambre Soubiran: (07:14)

On the other hand, that makes it closer to gold. However, I think we very often when we talk about sizes and when we talk about demand on bitcoin, we forget to think about supply. And we're today at 18 million bitcoin out of a total of 21 million. there's going to be the bitcoin holding and a couple of times this really makes bitcoin unique in terms of financial assets.

Ambre Soubiran: (07:38)

And I think it's the first financial assets for which after a point supply is actually likely to decrease. We already say that, I don't know, four out of the 18 million bitcoin are actually lost, lost somewhere on the blockchain somewhere because people have lost their keys for X, Y, Z reason. So supply and the fact that it's likely to start decreasing after a point is things that we don't really mention when we think about this as a macro asset. Price can increase, which will increase the market cap because it's divisible and because you could fraction bitcoin all the way to I think the power of nine. You can actually create value significantly. But there's this supply and this decreasing supply issue that I find interesting.

Nolan Bauerle: (08:29)

And you mentioned earlier about is it a currency and sort of people going back and forth trying to define it, and putting that next to what you mentioned about its size, a lot of these definitions come from basically looking in the mirror. So we've seen what currencies are over the past couple of years. We look in the mirror and we say, well it's got to be exactly like that. It's got to be like US dollar or the Euro or the Yen. What would you say if ... we're looking at bitcoin now because it's so small, it hasn't really been able to affect the definition of a currency. Is there a possibility that as it grows, could you see a time when it actually makes us rethink and redefine what some of these instruments are?

Ambre Soubiran: (09:09)

Yeah, absolutely. I mean I actually really think that it has already started to redefine the way we think of money in general. Like the idea that now there is this permissionless system that enables me to send a unit of accounts, effectively bitcoin, to whoever I want, whenever I want, at a relatively low fee is redefining the way we think about money. That's I think definitely the case already. But indeed, we really moved from the original kind of peer to peer electronic cash system, which is the original white paper presented by Satoshi 11 years ago now. Then it became this digital money narrative or this magic internet money, but today it's rarely seen as a cash system. There's an initiative, of course, like network in order to kind of improve efficiency and use cases for bitcoin as a currency, but it's still very little volume and it's not really seen today as money anymore.

Ambre Soubiran: (10:08)

Then it became this private and anonymous currency, all those things were from a time where institutional interest was barely existent. Actually, at the time where it was seen as this private and anonymous currency, I was working in banking at the time and we started to raise the idea that bitcoin was something interesting to look at and they were completely, completely reluctant to have anything to do with bitcoin. So institutional interest was not there yet.

Ambre Soubiran: (10:37)

And then the ICO craze happened and when that happened it started to raise interest both from the public audience, investors that wanted to make profits and also VCs. I mean it started to attract because it became big enough in size. It started to attract also interest from the more VC investor space initiative because that was disrupting.

Nolan Bauerle: (11:00)

Larger risk tolerance.

Ambre Soubiran: (11:01)

Yeah, larger risks. Absolutely. And they're financing their projects, right? A lot of projects that, I mean a lot of them were unfortunately scammy, but there's also a lot of great projects that actually raised funding and way more that would have raised playing the VC game and today, four years down the road, three or four years after the ICO, they're still not profitable but fully independent and autonomous. And they've grown in very different ways. I think it creates new forms of startups that wouldn't have existed without the ICO.

Nolan Bauerle: (11:29)

Yes. And separating the quality for a minute. Just the idea that it could happen to begin with was enough to make history.

Ambre Soubiran: (11:38)

Yeah, absolutely. And so that's I guess when it started having some form of mainstream adoption or if not adoption of more mainstream interest. And institutional interest then really started, interestingly not with the money but with the blockchain-not-crypto trend. We have a new way to create these programmable shared decentralized databases. And that was something that again, coming from 10 years of banking, I've heard a lot at some point it was bitcoin was a word you are not really supposed to pronounce, but distributed ledger and distributed database was really sexy. And I guess that started justifying more traditional interest for bitcoin in some ways. Like they liked it or not, but that justified that they could allow some resources into understanding that.

Nolan Bauerle: (12:27)

Yeah. And now it's starting to be called the global hegemonic synthetic currency I guess is the new tagline we're going with.

Ambre Soubiran: (12:35)

Exactly. And so that's exactly that. So the last actually, now the institutional interest is really more because we're looking at this and that's the point of this conversation from a more, oh, it's actually an uncorrelated financial assets. It's a new financial asset. It's censorship resistant, digital gold. We're not so sure what type of financial asset it is, but we know that it's decorrelated from traditional markets. And so it's interesting, we can start applying some trading strategies. We can start leverage, we can start doing different things on that assets that will generate returns. That's one part. And the other part is the reserve, right? It's a way to protect, to derisk from other types of financial assets.

Nolan Bauerle: (13:19)

So moving on to a more specific definition or type of behavior that we're seeing from bitcoin today, but still definitely related to being uncorrelated and perhaps not a victim of some of the political decisions jurisdictions are making. So you're in Europe, you've definitely got your own sort of political hot potato right now with Brexit and what that could mean. Do you expect or have you seen bitcoin even within those two sophisticated economies of France and England behaving as a safe haven asset? Of course, when the Brexit vote first happened, we saw bitcoin get a price bump back in 2016 and it was definitely a correlation there. Do you see anyone thinking along those lines in Europe? Do you see anyone worried about the Euro and using bitcoin or is it just not on anyone's radar right now in Paris and anywhere you'd see it acting as a safe haven is still in the Venezuelas of the world?

Ambre Soubiran: (14:16)

Yeah. So I think you're spot on on the issue you raised as well and I was going to get there. I think it's definitely seen as a safe asset in jurisdictions where there is much more political and economic uncertainty. So when you have high economic volatility and I was going to come up with Venezuela and Argentina, even Hong Kong recently, right? Hong Kong is generally one of the most stable and one of the best places to live from an economic standpoint because it's going through political dysfunctions and there's all these mass protests. Actually, if you look interestingly on the volumes on local bitcoin, which is a peer to peer exchange, volumes have significantly increased in all those countries.

Ambre Soubiran: (14:59)

So I guess, and it's also if you look back over the history and the early days of bitcoin, I guess it was 2013, 2014, at the time it was Ecuador and all these like more Central American countries that were also driving adoption. So from a safe haven perspective, I guess the question is where do you go and hide where you don't know where else to go. Like when really you're thinking I don't trust the current status quo anymore, where do I go? And the question is, is bitcoin a good place for that? So when things go wrong, there's only a limited number of things that you can do and a number of assets that are completely isolated from the rest of the system. And it is interesting in that way. I don't think at that point that people have a deep mistrust in the Euro or at least it's not a theme yet.

Ambre Soubiran: (15:51)

However, I read something that I thought it was really cool on HODLers and if you look at more the on-chain data stuff, you see that people that have been holding, you have bitcoins that have been sitting on wallets and even through the year to date ties of this year and the even all-time highs of the past years, you have people that haven't done or sold out or done anything over the past two years and five years. Meaning that those people, like there's two things. There's foregoing what you already to have to invest in bitcoin or to hide in bitcoin, and there is already having bitcoin and not wanting to get out of it and not wanting to actually take that existing gain, which is already on the table. If you've been holding for five years, you definitely make profits. However people are HODling, right?

Ambre Soubiran: (16:38)

So there's this idea, I don't think in Europe people are running away from Euro to invest in crypto because they see it as a safe haven yet. It might come to there if there's more political uncertainty. However, you definitely see that in the more already shaken economies that it's a way to avoid your government having control of your own wealth. Right?

Nolan Bauerle: (17:03)

Yeah. I did notice on LocalBitcoins, I haven't checked recently, but over the summer in Hong Kong, like you were mentioning, it was trading at about a hundred dollars premium, which meant the appetite certainly was there for whatever reason. But there was an appetite for sure.

Ambre Soubiran: (17:19)

Absolutely. That's really interesting. When you look at prices across different markets, you know we cover like a hundred exchanges, so there's even smaller local markets and Filipino markets, Mexican markets, you really see price difference depending on what is happening in the country. I think there was a 1% price difference in Hong Kong and in China recently, which I mean 1% might seem small, but as you said, when you put it especially over eight thousand dollars, it's actually $80, it's a lot of money.

Ambre Soubiran: (17:50)

On the safe haven thing though, there's also a still, even though it's much more, you know, bitcoin is now in I don't want to say everybody's mind, but close. However, there's still lots of misunderstanding of what it is. And one of the things I was hearing all the time when I was in the banking world was 'OK, but this bitcoin thing, it doesn't have any intrinsic value.' And this is something to which I obviously completely disagree, and my response to that was how can you say that having a system that enables permissionless transference and a decentralized and secure way to digitally transfer ownership, like just that system and the fact that it works and that it has been working for 10 years has value and that's the intrinsic value in my eyes.

Ambre Soubiran: (18:34)

But this is something because there are so many different narratives and so many misunderstandings, if you have an exchange that gets hacked and people understand that bitcoin was hacked, there's still too many misunderstandings, which I guess prevents people seeing bitcoin as a safe haven asset just because you just don't know what you're getting into. It's still muddy waters for most people.

Nolan Bauerle: (18:56)

They think of bitcoin exposure itself as risky, not as a hedge against jurisdictional risk.

Ambre Soubiran: (19:04)

Yeah, exactly. I think there's a lot of misunderstanding of I don't really know how this thing works, and so I'm afraid. And the reason they're afraid is also because they're in control, right? It's the first time that even if you don't understand, I'm sure you just say the random Joe in the street does not necessarily understand how the central bank work and how even their own bank works. The financial system is complex, right? But because you have intermediaries and you have people that are theoretically accountable for your money, it's not as scary. And also it's been working forever and that's the way they grew up. So it's not the same telling them, you have this new system that is transforming the way we represent ownership and the way we store value. It means that you have power back to the individuals, we're challenging many things, and because they don't understand it, they just don't want to go there.

Nolan Bauerle: (19:53)

And when you had mentioned HODL waves, of course, HODL waves are HODLing and then the data that goes along with analyzing a HODLing, which is the HODL waves. Can you really define the time preference or the trade that's happening? So you go back to the meltdown, for example, the people that made that bet, they bet against US housing. It was hard for them to hold and have a conviction on that trade through all of the FID and the people saying US housing is never going to go down. What are you doing making this bed? And of course, if you read the big short and all these other analysts who told the history of what happened then, of course, a lot of people sort of chickened out. They got weak knees and split. So when we look at the HODL waves, does it really tell you that people do believe that this safe haven behavior is bound to happen or they're at least hedging that it could happen and this is the instrument to use to avoid it happening in the future?

Ambre Soubiran: (20:51)

So it's a great question and I think it's already a very good signal to know that people who have made significant gains are not interested in exiting that system. Right? So that's the first thing. Then the second thing is what would show actual traction on the safe-haven narrative is if you had a lot of new inflows of people who were actually buying and holding. And the truth is that today bitcoin is still a very speculative asset and a lot of the volume that we're seeing are short term traders. That's no question.

Ambre Soubiran: (21:26)

However, I mean there's a reason why people are actually, you know, call it betting or call it speculating. The reason people speculate on that is hopefully they speculate on the fact that it will become a safe haven asset. And that's really the ... if we think about if a recession happened tomorrow, is the system sturdy enough yet to really be a safe haven and really have a significant inflow of capital into the bitcoin ecosystem and then hold through that. That's a question of the maturity of the bitcoin space as of now. However, people are trading it also because they think that it will increase, right? And if they think that they're going to profit, it's because they're hoping that it will become a macro asset or a safe haven.

Nolan Bauerle: (22:19)

So the next question I had, and you'd brought up recession, was what does happen to bitcoin in a recession? And what you're saying is there's the possibility and many people believe that it will be uncorrelated and will behave differently and will be a hedge against a recession. That's sort of out there.

Ambre Soubiran: (22:35)

Yeah. So that's a bit trickier I guess. And that really goes back to what I said about the maturity. It's in general, from an asset management perspective, you see historically that in big crisis, in the '07, '08 crisis, generally correlations just jump to one when things really go sour because people are just trying to save whatever they can.

Ambre Soubiran: (23:02)

So the question here is, is it going to be the same for bitcoin? And of course all of the more blockchain community and believers of which we are a part of would say that a recession would benefit bitcoin. But the truth is really when there's a crisis and when investors want to lower their risks, bitcoin is still considered a risky assets. We can believe whatever we want. It's still, unfortunately, a risky asset.

Ambre Soubiran: (23:27)

And it's about trust. And bitcoin is all about trust, right? The value of the ledger holds because there's this consensus mechanism and everybody agrees to trust the ledger. And so we can just try to imagine some scenarios, right? There's a crisis and investors are looking to move their money and they're considering bitcoin. And at that point, the system is overloaded, transaction fees skyrocket, everybody tries to protect their own interests. [inaudible 00:23:55] also will take transactions that have higher transaction fees. And so there's kind of a problem that happens at that point or a bottleneck into, I want to actually get my money into the bitcoin blockchain.

Ambre Soubiran: (24:10)

So the cryptocurrency infrastructure is still being built. And so would it support that? How would the world react to transaction fees skyrocketing? People saying, oh, that's actually really volatile. The price of the transaction, we thought it was low, but actually it's not. It's a crisis, so volatility will increase. How do people react? Right?

Ambre Soubiran: (24:31)

And the second thing is in that context is everybody gets scared and you have a main cryptocurrency player that either became rogue or just goes bankrupt or what does happen, what if there is a bank run? And at that point, everybody tries to protect their bitcoins and everybody withdraws all of their currencies that are currently in exchanges. Because exchanges are helping a lot in the mainstream adoption by providing a lot of services and they're increasing their custody services, they are more and more secure. But still, I doubt that tomorrow if I go and withdraw every single penny from ... I don't want to name exchanges but if everybody tried to withdraw their funds, that's a modern or a crypto version of a bank run. What happens then?

Ambre Soubiran: (25:16)

And what if that happens because people just tried to protect their coins, one of the big exchanges just goes bust and then it creates a complete shattering in the general trust in the ecosystem, and trust is what was the underpinning strength of that network. So in that case, what happens? And interestingly, if you look at the last 10 years, the best environments for bitcoin, and it's the same for most risky assets, is one where you have relatively declining market volatility, you have monetary policies that are quite accommodative and you have low return, low economic growth. And in that sense, it makes relatively risky assets more interesting. But in a real crisis, honestly, at that stage, I don't think the bitcoin space is mature enough to really, really handle a global economic downturn of the amplitude of what we've seen 10 years ago.

Nolan Bauerle: (26:18)

The sophistication of the platform isn't quite there yet.

Ambre Soubiran: (26:22)

And the irrationality of the players, right? Because that means all the super short term traders, nothing would ... like if transaction fees start skyrocketing and there's this kind of idea that people will risk-off and see what happens. But that means a lot less volume. And if you have a lot less volume, well you have order books that are completely depleted. Everybody that says wants to buy bitcoin, okay, well then you have a huge buying pressure on the order books and there is no market, nobody wants to sell. How does that work? In a market that weighs 170 billion of market cap and actually the actual volume is much smaller. What does happen if everybody wants to buy and there's no risk-takers and there is nobody on the other side. You have the order book that's going to be completely unbalanced. It's going to widen the spreads and people will end up buying at absurd prices. So you'll end up having takers, but it will completely shake the system. And I just don't know if it can absorb a lasting crisis.

Nolan Bauerle: (27:22)

So you've mentioned a lot about the sophistication of the users. You've mentioned that there is a certain growing risk tolerance. The types of people buying are changing. What have you seen in Paris dealing with this sophisticated market over the past, let's say six months? Have you seen a change in their opinion around bitcoin or is it pretty much just the same narrative and not much has happened in the past little while?

Ambre Soubiran: (27:49)

There's definitely much, much more tolerance, much more understanding, and also much more willingness to allocate resources and spend time to capture value in that ecosystem. I was yesterday in Stuttgart in Germany where all the German exchanges are really looking at that. In Switzerland, there's lots of initiatives by mainstream players. I'm talking about the Swiss digital exchanges [inaudible 00:28:15] platforms. Stuttgart Boerse is launching a trading platform where people can buy and sell crypto assets.

Ambre Soubiran: (28:22)

So there's really I think a genuine willingness to both regulate and accept and understand and also to support the developments there from more European regulation. I think they're seeing a lot of interest as well in the ... more in essence, and I'm stepping just one second away from bitcoin here, but on all the benefits of blockchain when it comes to these disintermediating the financing for SMEs, for example. So there's definitely the blockchain not bitcoin narrative at some point helped kind of go past specific limitations that were kind of old ghosts from the bitcoin is a way to finance the drug industry. There were those like mental blockages where institutional players saw bitcoin as something they didn't want to have anything to do with. And then they realize, oh blockchain is actually wonderful and now they're going back to bitcoin saying bitcoin actually is a new asset class.

Nolan Bauerle: (29:28)

Similar to what we're seeing with Libra and Facebook.

Ambre Soubiran: (29:31)

Yeah, I mean I would argue that Libra is not really a cryptocurrency. I guess that's maybe not the subject for now, but yeah, you're right. It's exactly that. It's bringing mainstream adoption to blockchain. Why is blockchain, why is it relevant and important? And then once people have accepted that blockchain actually is wonderful and important, bitcoin is the best expression of blockchain. And so then you go back to bitcoin. But it's this kind of acceptance phase that people need to go through. And I guess that's what happening now with Libra. It's what's happening with Chinese governments.

Nolan Bauerle: (30:05)

So now with what you do at Kaiko, it's really a data-focused company. Can you tell me a bit about a data point or a way of seeing data recently that's got you really excited and has brought certain clarity to you and you think is useful for the ecosystem?

Ambre Soubiran: (30:24)

Yeah, absolutely. So it's actually something I'm going to present next week at Consensus: Invest in New York. But one of the things, so at Kaiko, we only do market data. So we monitor in real-time and we've been doing that since 2013, price and volume on exchanges. So we look at every single order that is placed on markets and we look at every single transaction that is generated from a buy order and sold or matching on an exchange. So recently we've been looking more and more into order book data, and order books in some way represent the health, the strength and the structure of the markets. That's what I meant earlier. If everybody starts deciding that they want to transfer older financial wealth and bitcoin and we end up with a completely unbalanced order book because you'll have huge amounts of buy order and then no demand to absorb that.

Ambre Soubiran: (31:18)

So we've been looking at that for two reasons. One of them because it reflects the state of the market today. And second, because if you look at the way order books have evolved history, you also see how the market's become more and more sophisticated. And for that we're looking at two different data points. One of them is the market depth. And the way we define market debts is how many bitcoins are placed on the buy-side and on the sell-side for each markets, and by markets I mean for each different exchange, and what actually is the volume that is there that is at stake. How many bitcoins are people willing to buy and sell? And this is something we can see growing and I'll show this next week.

Ambre Soubiran: (31:58)

And the other one is slippage. Slippage is really interesting, especially for investors who want to back test the strategy. It's their free trade cost curve. It means how much percentage change am I going to get in my execution price depending on the different order sizes that I could place on percentage of the prevailing price. As in if I want to execute a 100,000 order, how much does it cost? If I want to execute a 500,000 order, how much is it going to cost? And we see that slippage these days are incredibly low. It goes down to two bips on some of the largest US exchanges for bitcoin markets. So bitcoin is by far the most efficient market. Slippage on bitcoin can go down to one to two bips, whereas it's somewhere between five and 10 bips for Ethereum for example, just as a horizon point.

Nolan Bauerle: (32:50)

So the buyers themselves are ... there's a lot of price discovery and they know if they're getting a deal or not.

Ambre Soubiran: (32:57)

Absolutely. So price discovery is super efficient. Prices are very tight. We even see some markets where you have crosses where there's so much buy and sell demand that people place orders above or below market price depending on if they're buying or selling. So looking at order book data shows very, very exciting insights to understand the space and to just monitor it in real-time, right? You can see exchanges, and by exchanges I mean just markets on bitcoin, becoming more and more efficient just because there's more and more price takers and price sellers on each side.

Nolan Bauerle: (33:30)

Interesting stuff. Interesting insights into the buyers and sellers and the market in general. So if you'd like to hear more of this type of content, you'll hear plenty of it next week, November 12th in New York City where Ambre will give a more in-depth presentation on this material. Thanks again for listening and look out for our next pop up podcast coming sometime in the next month.

Nolan Bauerle: (33:58)

Enjoyed this episode? I'd like to personally invite you to come to Invest: New York in November. The event features not only the speaker you just heard, but an array of other amazing thinkers. Visit coindesk.com and click events, or simply follow the link in the description. Thanks for listening and see you in New York City.

Kaiko CEO Ambre Soubiran image via CoinDesk archives