Worldwide Bitcoin Trading on LocalBitcoins in Comparison to other Crypto Exchanges

Nowadays, when the mass media talks about Bitcoin and cryptocurrency, they usually report what happens on the major exchanges, like Binance and Coinbase. However, there is another hidden pool of Bitcoin trades happening all over the world: the buyers and sellers directly negotiate for a price and trade directly, online or offline, without an glittering exchange interface to visibly show this trade in real time. LocalBitcoins.com (LB), with its fairly long history (2012–2019), is a platform for this type of trades.

Since these trading platforms are not under the spotlights, it would be very interesting to compare what happens on LB to other major crypto exchanges.

How does LocalBitcoins.com (LB) Work?

In short, it works like a craigslist of Bitcoin. Wikipedia has a brief introduction:

LocalBitcoins is a bitcoin startup company based in Helsinki, Finland. Its service facilitates over-the-counter trading of local currency for bitcoins. Users post advertisements on the website, where they state exchange rates and payment methods for buying or selling bitcoins. Other users reply to these advertisements and agree to meet the person to buy bitcoins with cash or pay with online banking. LocalBitcoins has a reputation and feedback mechanism for users and an escrow and conflict resolution service. As of December 2013, LocalBitcoins has around 110,000 active traders with a trade volume of 1,400–3,000 bitcoins per day.

Due to this similarity to craigslist, on which people advertise and trade stuff for their daily life, by investigating on the Bitcoin trading behavior on LB, we may get a glimpse of what role Bitcoin plays in the “slower” world, especially in those countries/regions where there are no well-established Bitcoin trading infrastructures, where high frequency trading flashboys and market trend speculators are gaming with one another.

Exchange Trading vs Retail Trading

Exchange trading is visible, real time, sometimes leveraged, susceptible to fake trades (e.g. printing the tape), and largely globalized. On the other hand, retail over-the-counter (OTC) trades are slow, partially visible, and are largely localized.

To demonstrate and quantify these differences, we first compare the snapshots of these two markets for general ideal of what a “typical” exchange market and a retail market look like. After that, we take a dynamic view to see how these markets changes as Bitcoin experiences booms and busts.

Snapshot Analysis

Trade Volume

Not surprisingly, the recorded exchange trading volumes is much higher than the retail trading volumes on LB.

The plots below visualizes the average daily volume of Bitcoin during the week 2019/04/01–2019/04/08 on LB, and the snapshot of 24h-volume (Bitcoin-to-fiat trades) on 2019/04/08 on coinmarketcap.com. Even if we take into consideration that recent research by websites like BitwiseInvestments and BlockchainTransparencyInstitute that more than 90% of the volumes are fake, we still observe a 2~3 order of magnitude difference between the two, which is enormous.