One of the things I've noticed as I've watched the order book is how incredibly one sided trade on cryptocurrencies tend to be. Everyone is buying or selling at once, and we rarely see two way trade where limit orders on both sides will get filled.
The result is an incredibly volatile instrument that is highly susceptible to manipulation by large players. It doesn't take much to get momentum going in their favour, and then they just wait for their target.
The solution to this problem is to increase liquidity. That is we need more people on both sides of the market willing to buy and sell. We need a thick instrument like the 10 year treasury futures are. We can encourage this by making a few changes to how exchanges work. These changes will make it harder to move price, and attract more liquidity. Honestly, I wish I could just start my own exchange, but I am only one person. So here are some ideas that I hope someone with the means implements.
Increase minimum tick size: Most exchanges price down to the cent. You can put your order in for whatever fiat value you want. This makes sense for general use because it lets users buy exactly the amount they need. It also creates a small spread which decreases attractiveness to market makers. I suggest we change this to the nearest dollar, or even 10's or 100's if necessary. Now a market maker can make a profit off even the smallest possible price movement. This also means that there will be far more liquidity available at each step since what are now dozens of orders at different prices will be consolidated into one price.
Iceberg orders: An iceberg order is a large order sitting on the order book that only shows a portion of the order at a time. So a user could have an iceberg for 10 Bitcoins, but you'll only see 1 Bitcoin on the book. When that 1 Bitcoin is filled the exchange automatically shows the next 1 Bitcoin until the order is filled. This is a feature on the exchange that makes it easier for large players to get filled. For market makers a large iceberg is a potential place to get filled easily. More importantly they slow down price. This brings in more liquidity and two way trade.
Focus on order flow tools: The current information available on many exchanges make it difficult to really understand what is happening under the hood. A true depth of market that shows how many orders have gone off at each price is essential. Many traders recommend against day trading cryptos because humans just don't have the information to really compete against robots. Such tools put humans on a much more level playing field.
Options: When the market goes south there are few safe havens. Large players exiting the market can create huge moves, and exciting is their only choice to protect profits. If options are introduced it provides a way to hedge positions without exiting the market.
