quick note on crypto price discovery

prompt from friend:

volatility is just lack of liquidity in a sense

i used to think it's information aggregation/uncertainty at a rapid pace but the root cause is that liquidity leaves

i think it can be both, sometimes in different places.

crypto "price discovery" at the exchange you're trading can be a bit like that for a single derivative contract...

...in that information-based price discovery is mostly happening somewhere else (more liquid venue, moves in global risk generally.)

and the price of the thing you are trading stays close to it because of arbs and quoter fair price models.

but deviates from it because of lack of liquidity or lumpiness of price-taking supply and demand (liquidations, fat fingers, donkey whales etc.)

might be a useful model for you. like all models it's kinda wrong and kinda right.

maybe it's useful?

after all, all we need to do is throw shit in vaguely the right direction and hope some of it sticks...