Bitcoin liquidity falls to 10-month low amid US bank run
Bitcoin (BTC) market liquidity had fallen to a 10-month low, despite a bullish quarter in terms of price gains. The liquidity drying-up is partly attributed to the banking operations in the US and the ongoing regulatory actions on crypto companies.
The liquidity situation in crypto worsens after the banking scare this month
I delved into several liquidity metrics to provide an update on all things crypto liquidity
First, $BTC Liquidity has fallen to 10-month lows as market participants lose access to USD payment rails pic.twitter.com/RwcBEJ8y5Z
— Conor Ryder (@ConorRyder) March 23, 2023
BTC price has recorded a 45% increase in 2023, making it one of the best performing assets. The price gains come amid a looming financial crisis in the traditional financial market, where shares and bonds have had one of their worst years. The financial crisis triggered a bank run in the US, which led to the collapse of several top banking giants.
The banking crisis also directly affected the crypto ecosystem, where the collapse of crypto-friendly banks such as Silicon Valley and Signature cut the US dollar payment rails, leading to a liquidity crisis, especially on US exchanges.
The crisis in liquidity has also led to increased price volatility forcing traders to pay more fees in slips. Slippage refers to the price difference between the expected price of a transaction and the price at which it is completed. For a sell order of $100,000, the slippage for the BTC-USD pair on Coinbase has risen by 2.5 times at the beginning of March. While during the same time frame, Binance’s BTC-USDT pair’s slide barely moved.
The liquidity crisis has also led to higher price volatility on US exchanges, where the price difference between BTC and USD pairs has increased drastically compared to non-US exchanges. For example, the price of BTC on Binance.US is more volatile than the average price of ten exchanges.
Conor Ryder, head of research for on-chan data analytics firm Kaiko, in a Twitter thread explained the drastic impact of the liquidity crisis on traders and the market. He noted that stablecoins replace USD pairs, and while it reduces the impact of US banking problems, it has a negative effect on US liquidity. He added that it will indirectly hurt investors there.
