Conor Ryder, a researcher at digital asset data provider Kaiko, has examined liquidity in the bitcoin and crypto markets in a new study, noting that the liquidity situation in crypto has continued to deteriorate this month following bank fears. Bitcoin liquidity fell to a 10-month low as market makers lost access to USD payment lanes.
What the liquidity crisis means for the Bitcoin price
Most importantly, this means that when liquidity is low, the bitcoin market becomes increasingly volatile. Prices have less support both on the downside and on the upside, which Ryder says could explain Bitcoin’s rapid rise since the beginning of the month.
Ryder shared the following chart in his analysis, explaining that liquidity in the BTC markets is even significantly lower than it was after the FTX and Alameda collapses. Kaiko describes the drop in liquidity at the time as the “Alameda Gap,” caused by the absence of one of the industry’s largest market makers.
Bitcoin Liquidity | Source: Twitter @ConorRyder
“That gap has yet to be closed and with the banking woes of late, liquidity has taken another hit,” notes Ryder, who also noted that the closure of the Silvergate Exchange Network (SEN) and the liquidation of Signet led to the US -Exchanges are more affected than non-US exchanges from a liquidity perspective.
This is because market makers in the US are now facing “unprecedented challenges” to doing business. “We can see the difference in the reaction between US and non-US exchanges with tighter reactions to some of the liquidity issues of the last month,” Ryder said.
But the analyst also has good news. Liquidity has now recovered to early March 2022 levels. However, he warns that the loss of easy fiat access could have longer-term ramifications.
According to Ryder, the blow the U.S. crypto industry has taken is showing up in other metrics as well. Spreads on USD pairs suffer from higher volatility due to uncertainty, as does slippage:
On a $100,000 sell order, Coinbase’s BTC-USD pair is up 2.5 times the slide seen earlier in the month, while Binance’s BTC-USD pair has since seen little movement.
Ex-Coinbase CTO Balaji S. Srinivasan, who is currently in the spotlight with his $1 million bet on Bitcoin, stated of Ryder’s research:
Interestingly, as the liquidity of the bitcoin markets dwindles under government pressure, fewer purchases are required to bring USD/BTC to the moon.
I don’t think the state can shut it down completely, but we shouldn’t wait. Paradoxically, closing the exit makes the exit more desirable in more ways than one.
At press time, bitcoin price was standing at $28,176, facing the major resistance zone above $28,300.
Bitcoin price 1-day chart | Source: BTCUSD on TradingView.com
Bitcoin price 1-day chart | Source: BTCUSD on TradingView.comFeatured image from iStock, chart from TradingView.com
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