Bitcoin's Market Liquidity Drops to 10-Month Low
Bitcoin's market liquidity has decreased to a 10-month low due to the US banking crisis and regulatory actions against crypto companies, leading to increased price volatility and higher fees for slippage, as stablecoins replace USD pairs, but indirectly harm US investors.
Despite a positive quarter in terms of price gains, Bitcoin's market liquidity has dropped to its lowest point in 10 months. The decrease in liquidity is partially attributed to the banking crisis in the US and regulatory actions taken against crypto companies. Despite a 45% increase in price, the traditional financial market has experienced one of its worst years, with stocks and bonds struggling. The collapse of crypto-friendly banks, such as Silicon Valley Bank and Signature Bank, has resulted in a liquidity crisis, particularly on US exchanges, as important US dollar payment rails for crypto have been removed.
The drop in liquidity has led to increased price volatility and higher fees for slippage, which is the difference between the expected and fully executed transaction price. The slippage for a $100,000 sell order of BTC/USD on Coinbase increased by 2.5 times in early March, while Binance's BTC/USDT pair's slippage barely changed during the same period. The discrepancy in price between BTC and USD pairs on US exchanges has also increased compared to non-US exchanges, with BTC's price on Binance.US being more volatile than the average price across 10 other exchanges.
Conor Ryder, head of research at on-chain data analytics firm Kaiko, explained that the liquidity crisis has had a significant impact on traders and the market. Stablecoins are replacing USD pairs, which lessens the impact of the US banking crisis but negatively affects liquidity in the US, indirectly harming investors there.
