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Breaking News: Coinbase Confirms DOJ Investigation Following Major Security Incident

Bitcoin Liquidity Crisis Gets Worse, Here’s What It Means For Price

Jake Simmons
Jake Simmons
1 year ago
2 mins read
Bitcoin

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Conor Ryder, researcher at digital asset data provider Kaiko, has examined the liquidity of the Bitcoin and crypto markets in a new study, finding that the liquidity situation in crypto has deteriorated further this month following the banking scares. Bitcoin liquidity dropped to a 10-month low as market makers lost access to USD payment rails.

What The Liquidity Crisis Means For The Bitcoin Price

Most importantly, this means that the Bitcoin market becomes increasingly volatile when liquidity is low. Prices have less support on both the downside and upside, which Ryder says could explain Bitcoin’s rapid rise since the beginning of the month.

Ryder shared the chart below in his analysis, explaining that liquidity in the BTC markets is even significantly lower than it was after the FTX and Alameda collapse. Kaiko refers to the drop in liquidity at the time as the “Alameda gap,” which was created by the absence of one of the industry’s largest market makers.

Bitcoin liquidity
Bitcoin liquidity | Source: Twitter @ConorRyder

“That gap has yet to be filled, and with the banking issues of late, liquidity has taken another blow,” notes Ryder, who also observed that the closure of the Silvergate Exchange Network (SEN) and the unwinding of Signet, have resulted in US exchanges being hit harder than non-US exchanges from a liquidity perspective.

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This is because market makers in the US are now facing “unprecedented challenges” to their operations. “We can see the difference in reaction between US and non-US exchanges with more severe reactions to some of the liquidity issues of the last month,” Ryder said.

But the analyst also has some good news. Liquidity has now recovered to levels seen in early March 2022. Still, he warns that the loss of easy fiat access could have longer-term implications.

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According to Ryder, the blow the US crypto industry has taken can be seen in other metrics as well. Spreads for USD pairs are suffering from higher volatility as a result of the uncertainty, as is slippage:

On a $100k sell order, Coinbase’s btc-usd pair has increased by 2.5x the slippage it started the month at Binance’s btc-usdt pair’s slippage meanwhile barely moved.

Ex-Coinbase CTO Balaji S. Srinivasan, who is currently in the spotlight with his $1 million bet on Bitcoin, stated in reference to Ryder’s research:

Interestingly, as the liquidity of Bitcoin markets decreases under state pressure, it takes less buying to get USD/BTC to moon.

I don’t think the state can close it fully, but we shouldn’t wait. Paradoxically, closing the exit makes the exit more desirable in more ways than one.

At press time, the Bitcoin price stood at $28,176, facing the major resistance zone above $28,300.

Bitcoin BTC price
Bitcoin price, 1-day chart | Source: BTCUSD on TradingView.com
Featured image from iStock, chart from TradingView.com
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Jake Simmons
Jake Simmons

Jake Simmons

Jake Simmons, a dedicated crypto journalist, has been passionate about Bitcoin since 2016 when he first learned about it. Through his extensive work with NewsBTC.com and Bitcoinist.com, Jake has become a trusted voice in the crypto community, guiding newcomers and seasoned enthusiasts alike towards a deeper understanding of this dynamic field.

Read more

His mission is simple yet profound: to demystify Bitcoin and cryptocurrencies and make them accessible to everyone.
With a professional career in the Bitcoin and crypto scene that began right after graduating with a degree in Information Systems in 2017, Jake has immersed himself in the industry. Jake joined the NewsBTC Group in late 2022. His educational background provides him with the technical prowess and analytical skills necessary to dissect complex topics and present them in an understandable format. Whether you are a casual reader curious about Bitcoin or an investor seeking to navigate the latest market trends, Jake’s insights offer valuable perspectives that bridge the gap between complex technology and everyday usage.

Jake is not just a reporter on technological trends; he is a firm believer in the transformative potential of Bitcoin over traditional fiat currencies. To him, the current financial system is on the brink of chaos, propelled by unchecked government actions and flawed Keynesian economic policies. Drawing from the principles of the Austrian school of economics, Jake views Bitcoin not merely as a digital asset but as a crucial step towards rectifying a failing monetary system. His libertarian views reinforce his stance that just as the church was separated from the state, so too should money be freed from governmental control.

For Jake, Bitcoin represents more than just an investment; it's a peaceful revolution. He envisions a future where Bitcoin fosters a sustainable and responsible financial framework for generations to come. His advocacy is not about opposition but about evolution, about laying the groundwork for a system that prioritizes transparency and equity over secrecy and inequality.

As a journalist, Jake’s articles are crafted with the precision of a scholar and the passion of a true believer. He provides not only news but also thoughtful analysis that connects the dots between daily developments and larger economic theories. His work is a beacon for those lost in the technical jargon often associated with crypto discussions, illuminating the practical implications and benefits of these technologies.

In summary, Jake Simmons is not just reporting on a revolution; he wants to be part of it, fully committed to enhancing public understanding and adoption of Bitcoin and cryptocurrencies. His work is more than just a collection of articles; it’s a resource, a guide, and a companion for anyone ready to explore the potential of this digital frontier. Whether you are taking your first steps into crypto or are a veteran looking to stay on top of the latest trends, Jake’s insights provide clarity and foresight in an often unpredictable industry. Join him on this journey to reshape the world of finance, one post at a time.

You can engage with his latest takes on Twitter: @realJakeSimmons.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality
Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

Morbi pretium leo et nisl aliquam mollis. Quisque arcu lorem, ultricies quis pellentesque nec, ullamcorper eu odio.

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