No matter where you look, bitcoin liquidity it remains low, despite the flashy cryptocurrency boom this year.
According to Conor Ryder of Kaiko, investors have been paying more for trades due to slippage, i.e. the difference between the expected price of a transaction and the price at which it is fully executed, a sign that liquidity it has gotten worse. the older is the difficulty to negotiate, more exposed are the investors to possible volatile price swings.
This can occur due to a change in the bid-ask spread between the time a trade is placed and the time it is executed, or when there is not enough depth in the order book to support large orders.
Cryptocurrencies are attractive again amid financial turmoil
Although bitcoin’s rally this year made it the best performing asset in the first quarter, increased regulatory measures in United States and the bankruptcy of some banks adjacent to crypto assets have tempered the enthusiasm of some investors.
“It’s more of a sign of institutional reluctance to offer liquidity in the space,” said Ryder, a Paris-based research analyst at the firm. Many cryptocurrency companies do not want to be caught in the middle of a battle between US regulators and stock markets.
Although prices recovered in early 2023, trading volumes and liquidity in the crypto-asset market dried up in the past year amid a general price decline, which has seen bitcoin lose nearly 39%, to around $28,000, and some other coins even higher.
Bitcoin believers expect it to hit $30,000
During that period, investors pulled out because of a series of scandals that drove them away. Analysts are now especially attentive to how small retail investors may behave, as they have been an integral part of the system, helping to drive up prices during the initial boom of the pandemic.
“The tourists are definitely gone,” said Mark Connors, head of research at digital asset management firm 3iQ. “SIf one is in this, one must understand that the volatility is thereit is not known where it goes day by day, but it is understood the trajectory, the adoption, etc.”
Spot volumes on some of the most popular crypto exchanges also help tell this story. Binance, the largest trading platform, recorded normalized trading volumes of more than $6 billion in 24 hours at the end of March, with around 65 million monthly visits. In contrast, Coinbase, the second largestposted a trading volume of about $1.3 billion, with roughly 33 million monthly visits, according to data from CoinGecko and figures compiled by the company.
Bitcoin trading volumes have plummeted, “which inevitably makes the market more volatile,” says Fiona Cincotta, a senior financial markets analyst at City Index. “The sharp drop in volumes means it’s easier for large orders to move BTC prices. So don’t move, there could be more wild swings.”
He added: “The drop in volumes points to a waning appetite for bitcoin at its highest recent levels. amid waning worries around the banking sector and as the regulation of crypto assets comes under the spotlight.”
The bitcoin appreciates after the support of the Fed to the banking sector
In recent days, news broke that the US Commodity Futures Trading Commission sued the founder Changpeng Zhao y to its cryptocurrency exchange Binance for alleged violations of derivatives regulations. Binance said that he did not agree with the description of many of the problems exposed in the lawsuit.
“It remains to be seen how the case will affect the operations of Binance”, said Strahinja Savic, head of data and analysis at FRNT Financial. “In this context, the liquidity status quo in the crypto space has not been affected by the allegations.”
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