Key Takeaways
Cryptocurrency trading pairs let you exchange one asset for another. Traders can place buy and sell orders for each asset in a trading pair with the counter asset.
The base asset in a trading pair presents a measure of value relative to the current value of the quoted currency.
Arbitrage trading takes advantage of how these values might differ on different exchanges.
In centralized exchanges, the paired assets make up the order books for both the sell and buy sides. On decentralized exchanges, liquidity providers supply both assets to the liquidity pool.
Both centralized and decentralized contemporary cryptocurrency exchanges place two tradable assets ‘side-by-side’ on their platforms. Any trader who holds one asset can (directly) exchange them for the other with a few clicks. But this system is a sustainable design developed from traditional markets and tailored for digital exchanges. These assets put up against each other are known as trading pairs.
What Are Crypto Trading Pairs?
From a pool of thousands of crypto assets, crypto trading pairs narrow down the exchange options available to traders to a mix of two assets each. The pairing system makes for an organized trading pattern and takes a leaf from the earliest trading systems – barter trading and the relatively modernized trading systems that use legal tenders.
In both systems, one commodity can only be exchanged for another, at a time. However, in contrast to the barter system, this pairing lasts longer and is static until they are delisted by the exchange or routed differently.
Assets in a trading pair could be any combination of stable (or pegged) assets and normal crypto assets. In any case, both assets present a visual comparison of their values. Apart from being a comparison of values, trading pairs present a comparison of financial viability through liquidity structures and trading statistics.
Trading pairs are indicated with the paired assets’ tickers. For example, the bitcoin (BTC) and Ethereum (ETH) pair are listed on exchanges as BTC/ETH.
Base Currency
The base currency is the first cryptocurrency in a trading pair, so in a BTC/ETH trading pair, bitcoin will be the base currency. The base currency is the reference currency in a trading pair, where orders are made with respect to the base currency.
Quote Currency
The second half of a trading pair is the quote currency, so in a BTC/ETH trading pair, ETH will be the quote currency, which means it's the price of the base currency in the quote currency.
In the chart below, this means that 1 BTC was worth 15.89 ETH at the time of the screenshot. Most price charts, like GeckoTerminal, will let you toggle between the quote currency of the pair and USD.
How Do Crypto Trading Pairs Work?
The functionality of cryptocurrency trading pairs is a synergy of economic approaches and technological work-throughs. Both are put together in developing pairing systems for centralized and decentralized exchanges.
On centralized spot exchanges, order books are designed to support only both assets. Traders can only place buy and sell orders for any of the two assets. The underlying technology takes a record of the orders made and organizes them according to the purchase or sale price chosen by the trader.
To purchase the base currency, a trader must have the quote currency in their possession. They indicate the price at which they wish to buy and the amount of the quote asset they are willing to commit to the trade. Sellers indicate the price (of the base currency) at which they wish to sell their assets and the number of assets they wish to sell.
Sale requests are arranged in ascending order (lowest to highest sale price) while the buy orders are arranged in descending order (highest to lowest price). When a trader’s requests are met, their asset is swapped for the other.
Other trading systems like Forex and derivative trading use similar technology in addition to other features like leveraging.
For decentralized exchanges, the asset pairing system is powered by the liquidity pool and Automated Market Maker protocols. The liquidity pool is designed to accept only the two paired assets. Liquidity providers are expected to commit equal values of both paired assets. With the two assets in the pool, the Automated Market Maker (AMM) serves trade requests and updates the sale price of the base currency after each trade.
Learn more about decentralized finance (DeFi), Liquidity pools and the AMM.
Stablecoins and Crypto Trading Pairs
The value of stablecoins is fixed. Stablecoins pegged to fiat currencies are being paired with other volatile assets on exchanges. Like the traditional market, holders of the stablecoin are equivalent to buyers who wish to swap their fiat currencies for cryptocurrencies.
Like fiat, stablecoins pairs create a standard measure of value. As the other asset trades against the stablecoin, variation in value represents a change against a base or quote currency (depending on the pairing pattern) that doesn’t or hardly shifts from its known value. Traders who wish to verify general price variations for a particular asset consult the stablecoin pair(s). This however is only an extra utility of stablecoin pairs.
The main purpose a stablecoin pair serves is to provide an avenue for interconversion between a volatile and stable asset. Stablecoin pairs present to traders a means to switch to a non-fluctuating asset and preserve their profit or minimize their losses.
Thanks to these reasons, stablecoin pairs generate a notably huge amount of trading activities across exchanges. They post one of the highest trading volumes as most assets on exchanges have a stablecoin pair. Stablecoins pegged to the US dollar (USDT, BUSD, USDC) are widely used.
Stablecoins are also paired with each other (like USDT/USDC, BUSD/DAI, and USDT/FRAX) to allow traders to switch to a stablecoin they consider more technically advanced, relatively more stable, or just as a route to trading other assets.
Crypto Trading Pairs and Arbitrage
Due to certain factors, the value of an asset may show slight and usually short-lived variations across different exchanges or trading pairs in the same exchange. This variation is known as arbitrage. Differences in orderbook density and spread could cause an asset to attain a different value relative to the standard value (value of the stablecoin pair) or the derived value, for assets paired with other volatile assets.
This variation is expected to resolve in a short time as arbitrage traders rush to exploit the gap. To exploit an arbitrage, traders buy the asset from the pair or exchange where it trades at a lower value and sell it where it trades at a higher price. Depending on the magnitude of the arbitrage and how long it lasts, arbitrage traders can make tangible profits by swiftly trading against the gap. These factors (arbitrage gap and duration) are in turn, dependent on the liquidity and spread in the pairs’ orderbook.
Just in case you are considering venturing into arbitrage trading, it is important to take note of the factors that might affect the profitability of the trade. Learn more about arbitrage trading and how it works.
Examples of Crypto Trading Pairs
Many cryptocurrency trading pairs are associated with a stablecoin, such as USDT or USDC, which is one reason why these fiat-backed stablecoins have such high market capitalization. Other common crypto trading pairs may include popular cryptocurrencies, such as BTC/ETH, or related cryptocurrencies, such as BTC/BCH.
Bitcoin and Ethereum (BTC/ETH or ETH/BTC)
Undeniably the two most popular and important cryptocurrencies to date. The BTC/ETH trading pair puts together the two assets that dominate the cryptocurrency sector. Bitcoin and Ethereum share between themselves, over 50% percent of the total cryptocurrency market capitalization, an excess of 150 million holders, and a combined dominance of 62.4% of the crypto market at the time of publication. With most cryptocurrency investors holding and actively trading at least one of the two assets, the pair records high trading activity and solid liquidity relative to other pairs, regardless of the exchange on which they trade.
The Bitcoin and Ethereum pair record a high of over $100 million in 24 hour trading volume on the most popular exchange for the pair. Apart from being one of the most active trading pairs, the BTC/ETH pair generate much interest from cryptocurrency investors due to two reasons – general price development and “bitcoin flippening”. Investors believe that Ether is the only asset capable of dethroning bitcoin, in terms of total market cap.
The BTC/ETH pair shows how they perform against each other and Ether continuously gaining against bitcoin means the overtaking might happen. Regardless of the feasibility of this, investors are glued to the famous pair. Also, Ether gaining against bitcoin has over the years proven to be a positive sign for other cryptocurrencies (altcoins).
Bitcoin and USDT (BTC/USDT)
Tether introduced the USDT stablecoin as a way of improving the liquidity on cryptocurrency exchanges and also to make it easier for mainstream institutions or individuals looking to invest in cryptocurrency. USDT presents a tokenized version of the US dollar. To achieve its goal of improving liquidity, USDT is paired with crypto assets, including bitcoin, on exchanges to allow these institutions to easily swap the USDT issued to them for bitcoin and also enable traders to evade the volatility of other cryptocurrencies by switching to a more stable asset. The BTC/USDT pairs record up to $4 billion in trading volume daily.
Ethereum and USDT (ETH/USDT)
Just like the BTC/USDT pair explained earlier, Ethereum’s stablecoin pair creates a standard value and allows tokenized fiat holders to trade their stablecoins for Ethereum and vice versa. Ethereum holders can also convert to a more stable asset using this pair. The ETH/USDT pair records up to $600 million in 24hrs trading volume.
Tether USD and Circle’s USDC (USDT/USDC)
USDT and USDC are the two most popular stablecoins in the crypto space. They split a market capitalization of over $105 billion, each controlling over $40 billion in stablecoin. USDT and USDC are issued by Tether Inc. and the Centre consortium, respectively. The issuing process is similar; however, cryptocurrency communities shift their holdings from one to the other depending on market sentiments. Traders convert between the two stablecoins mainly as a step in their trading route as most assets don’t have both stablecoin pairs.
A good percentage of traders swap between both stablecoins to switch to the asset they consider safer and more technically advanced. The USDC/USDT pair records up to $20 million in trading volume per day.
Dogecoin and Shiba Inu (DOGE/SHIB)
Dogecoin is a pioneer figure for meme coins. The dog-themed cryptocurrency has since transformed into a very important cryptocurrency and has enjoyed mainstream interest. Following its success, many similar projects have emerged, most of them retaining the dog nomenclature introduced by Jackson Palmer’s project. Like Doge, a handful of them have seen tangible success, one of them being Shiba Inu.
Issued on the Ethereum blockchain, Shiba Inu rose to prominence following some marketing breakthroughs. It has since then climbed the charts and gained a huge community and historically overthrew dogecoin in terms of market cap, it has since returned to levels below Dogecoin. Dogecoin and Shiba Inu communities are of interest, and with the stiff competition between the two assets, cryptocurrency exchanges have moved to pair them together to allow direct trades between the two biggest meme coins.
DOGE/SHIB pair records an average of $3 million per day in trading volume. Learn more about the Shiba Inu ecosystem, including ShibaSwap and Shibarium.
Bitcoin and Bitcoin Forks (BTC/BCH and BTC/BSV)
The famous fallout in the early Bitcoin community led to a three-way split. BSV and BCH were created as a result. Along with Bitcoin, these two assets operate the core Bitcoin blockchain code but apply a few changes, mainly in administration.
The communities behind the two popular Bitcoin forks wrangle constantly as they look to succeed over each other and hopefully emerge as the true electronic cash system envisioned by Satoshi. The latter hasn’t really worked, but exchanges recognize the relationship between these three assets and have moved to create trading pairs with them.
The pair of bitcoin and its forks bring the split communities together as they trade their assets for the other. Each pair has seen active trading, each raking in millions of dollars in reported daily trading volume.
Final Thoughts
Arranging tradable assets in pairs serves a purpose for traders and also exchanges. The platform and the general market attain a structure as the listed assets are organized in pairs. Spot and derivatives traders can plan their trading routes, track price developments, and also obtain certain other information that helps their trading journey. Arbitrage opportunities are also a good one to look out for as a low-risk trading practice.
Planning a crypto trade? Always do your own research before investing in any cryptocurrency. This article is for educational purposes not a financial advice.
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