Widespread liquidity problem threatens Bitcoin, Ethereum’s future — Experts sound the alarm – Silvergate Capital (NYSE:SI)

Despite Bitcoin‘s BTC/USD recent price rally – crossing the 29,000 mark earlier this week – the cryptocurrency market still faces challenges.

A major problem is the low liquidity risk that was exposed due to the closure of Silvergate‘s SAY SEN network and Signature‘s Signet network in early March.

Liquidity is a crucial aspect of the trading world and its importance can be summed up by the saying “Liquidity is king”, which refers to the market’s ability to easily convert an asset into fiat currency.

Lack of liquidity in a market can lead to thin order books, slippage, wider spreads and increased volatility. These inefficiencies can cause traders to lose money and discourage sophisticated investors from entering trades.
Ahmed IsmailCEO and founder of LIQUID, explained that the recent bitcoin liquidity drop highlights a breakdown in confidence in managing liquidity risk. Several crypto-fiat companies have moved away from the US and into Asian markets such as the UAE and Singapore.

An analyst knows Bitfinex noted that the collapse of some regional US banks has caused a reduction in liquidity and wider bid-ask spreads.

Also read: US Treasury Officials set the record straight on bank failures and crypto’s role

The cryptocurrency market would do well to find alternative sources of liquidity, says the analyst. The market should promote the use of stablecoins and encourage more institutional investors to enter the market.

Lucas Kielyinvestment director i Yield Appemphasized the importance of developing reliable and trustworthy exit ramps to support the market in times of liquidity problems.

GK8‘s Sigal Biran Nager stressed the role of entry and exit points in facilitating liquidity and the need for clearer regulation in the market.

Aaron Rafferty from Default DAO noted that the disrupted liquidity has the potential to reduce the value of cryptoassets. He also highlighted the importance of decentralized finance (DeFi) and self-custody solutions to protect assets in the event of a bank collapse.

Experts believe that the market can overcome the liquidity crisis by finding alternative sources of liquidity and improving market efficiency through the use of stablecoins, better regulations and decentralized financing solutions.

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