Concerns about liquidity in the cryptocurrency markets have been increasing, and recent bank failures have only made an already perilous situation worse. In a recent blog article, Kaiko Research analyst Conor Ryder looked at market depth, spreads, slippage, and volumes as important indications of liquidity in the cryptocurrency markets.
Ryder's investigation indicates that the closing of Silvergate's Signet payment network and the SEN network, both of which were essential for market makers in the area, has severely stressed liquidity. His analysis of market depth reveals that neither the native units of Bitcoin nor Ethereum have improved, with liquidity levels at their lowest in ten months.
Due to banking problems, spreads have also increased in volatility, notably for USD-linked exchanges and pairs. According to Ryder, these spreads and depth will become more volatile the longer it takes for a credible alternative to SEN or Signet to emerge. The impact of Binance's decision to end its zero-fee program for Bitcoin trading pairings is also highlighted by him. This decision resulted in a 70% decrease in liquidity for the BTC-USDT pair on the exchange.
2/ US exchanges have been hardest hit due to the closure of USD payment rails and crypto banks
— Conor Ryder (@ConorRyder) March 23, 2023
Market makers in the region facing unprecedented challenges to their operations pic.twitter.com/jihCNJjoql
Slippage has grown on Coinbase compared to Binance as a result of liquidity problems in the U.S. Slippage on the BTC-USD pair on Coinbase is now 2.5 times greater than it was at the beginning of the month. In terms of trading volumes, Binance has maintained its market dominance while U.S. exchanges have found it difficult to expand their market share.
Ryder said that there has been a change in the volume share for each exchange and that very little traffic actually enters U.S. exchanges, which in turn affects USD pairs. This conclusion is supported by the volume split between stablecoin and USD, with stablecoins increasing from a 77% share of volumes to a 95% share in less than a year.
Slippage has grown on Coinbase compared to Binance as a result of liquidity problems in the U.S. Slippage on the BTC-USD pair on Coinbase is now 2.5 times greater than it was at the beginning of the month. In terms of trading volumes, Binance has maintained its market dominance while U.S. exchanges have found it difficult to expand their market share.
Ryder said that there has been a change in the volume share for each exchange and that very little traffic actually enters U.S. exchanges, which in turn affects USD pairs. This conclusion is supported by the volume split between stablecoin and USD, with stablecoins increasing from a 77% share of volumes to a 95% share in less than a year.
Ryder comes to the conclusion that stablecoins are becoming more and more popular among investors as they abandon USD pairs, changing the dynamics of liquidity. New investors may be drawn to the cryptocurrency asset class if a new payment network emerges that is comparable to SEN or Signet in terms of market volatility and liquidity.
