Bitcoin Liquidity on Binance has more than halved since February: Kaiko
Binance trading volume and liquidity have been steadily declining in the first quarter of 2023, amid the wave of US bank failures and following the end of the zero-fee campaign.
The result?
That has led to even more notches for the price of Bitcoin, said Kaiko analyst Dessislava Aubert Decrypt.
Aubert said that “Overall, Bitcoin liquidity on Binance has more than halved since the beginning of February from around $45 million to $16 million in early May.”
The primary reason for the drop in liquidity was the removal of Binance’s 10-month zero-fee promotion for 13 different BTC pairs, which also caused market makers to leave the platform.
In particular, monthly trading volumes for the exchange’s most traded pair, BTC-USDT, fell from $16 billion in March to $2 billion in April, the Kaiko analyst said.
Aubert added that the drying up of liquidity “has been more pronounced” after the wave of bank failures earlier this year. The collapse of two key industry on-ramps in Silvergate and Silicon Valley Bank also hit specific firms, including Ripple, Circle, Yuga Labs and many others.
The 1% market depth, a measure of liquidity calculated using bids and asks within 1% of the mid-price, on Binance fell significantly after the bank failures.
Low Bitcoin liquidity—So what?
The result of reduced liquidity and volume on Binance has been increased volatility.
Kaiko’s intraday volatility measurement for the 10-minute interval increased significantly around the time liquidity began to fall on Binance.
Low liquidity conditions mean thin order books on exchanges that leave room for wild price fluctuations from large orders.
“We’ve seen this with BTC’s recent sudden price movement that didn’t have a clear catalyst,” Aubert said. “Volatility is unlikely to go away, especially after some major market players (Jane Street and Jump Crypto) revealed that they were reducing their crypto exposure.”
Bitcoin liquidity hits 10-month low amid US banking crisis
Notably, Bitcoin’s price fell this week despite favorable conditions such as a positive CPI report and market expectations largely leaning toward a rate cut in the future by the US Federal Reserve.
A low interest rate environment enables cheaper debt in the economy which fuels a rise in speculative assets like Bitcoin.
However, the asset failed to stage an uptrend probably due to poor liquidity.
