In a recent study, Conor Ryder, a researcher at the digital asset data provider Kaiko, looked at the liquidity of the Bitcoin and cryptocurrency markets and found that, as a result of the banking concerns this month, the liquidity situation in cryptocurrencies has gotten worse. After market makers lost access to USD payment rails, bitcoin liquidity fell to a 10-month low.
The Impact Of The Liquidity Crisis On The Price Of Bitcoin
Most significantly, this implies that when liquidity is low, the Bitcoin market becomes more volatile. There is less support for prices on the downside and the upside, which, per the Ryder, could account for Bitcoin's sharp increase since the beginning of the month.
In his analysis, Ryder included the graph below and noted that it shows how much less liquid the BTC markets are now than they were during the FTX and Alameda collapse. The "Alameda gap," as it was known at the time, was caused by the absence of one of the biggest market makers in the sector, based to Kaiko.
As per Ryder, "that gap has yet to be filled, and with the banking issues of late, liquidity has taken another blow." Ryder also noted that US exchanges have been hit harder than non-US exchanges from a liquidity perspective as a result of the closure of the Silvergate Exchange Network (SEN) and the winding down of Signet.
This is due to "extraordinary obstacles" that market makers in the US are currently confronting with their business operations. When it comes to some of the liquidity difficulties from the previous month, Ryder stated, "We can observe the difference in reaction between US and non-US exchanges with more severe reactions."
The analyst also has some positive news, though. Currently, liquidity is back to the levels it had in early March 2022. Nonetheless, he cautions that the removal of simple fiat access may have longer-term effects.
Ryder asserts that other data also reflect the impact to the US crypto business. Due to the uncertainty, spreads for USD pairs are experiencing more volatility.
On a $100k sell order, the slippage on Coinbase's bitcoin-to-usd pair has climbed by 2.5 times the amount it was at the beginning of the month, whereas it barely changed on Binance's bitcoin-to-usdt pair.- as is slippage.
Balaji S. Srinivasan, the former CTO of Coinbase, who gained notoriety by placing a $1 million wager on Bitcoin.
It's interesting to note that less buying is required to send USD/BTC to the moon when the liquidity of Bitcoin marketplaces declines as a result of state pressure. The state can't, in my opinion, completely shut it down, but we shouldn't wait. Ironically, shutting the exit makes it more appealing in a variety of ways.- Mentioned in relation to Ryder's research.
The price of bitcoin was $28,176 at the time of publication, just above the $28,300 big resistance level.