The cryptocurrency markets are facing mounting concerns over liquidity, with the recent banking sector collapses only adding to the already fragile situation. In a recent blog post, Conor Ryder, an analyst at Kaiko Research, delved into the issue, exploring market depth, spreads, slippage, and volumes as crucial indicators of liquidity in the crypto markets. As the industry continues to evolve, it is imperative that we closely monitor these indicators to ensure the stability and sustainability of the market.
Ryder’s insightful analysis reveals that the recent shutdown of the SEN network and Silvergate’s Signet payment network has placed additional pressure on liquidity, which is critical for market makers in the cryptocurrency space. Upon examining market depth, it is evident that Bitcoin and Ethereum have not experienced any significant improvements in native units, with liquidity levels reaching their lowest point in the past ten months. These findings highlight the importance of maintaining a robust and stable infrastructure to support the growth and sustainability of the cryptocurrency market.
The banking issues have caused a surge in volatility for spreads, especially those linked to USD exchanges and pairs. Ryder, an expert in the field, warns that the longer it takes for a reliable alternative to SEN or Signet to surface, the more unstable these spreads and depths will become. Additionally, the recent decision by Binance to discontinue its zero-fee program for Bitcoin trading pairs has had a significant impact, resulting in a 70% decrease in liquidity for the BTC-USDT pair on the exchange. As a professional, it is crucial to stay informed and adapt to these changes in the market.
According to Ryder’s analysis, liquidity problems in the United States have resulted in a surge in slippage on Coinbase compared to Binance. The BTC-USD pair slippage on Coinbase has increased by two and a half times since the beginning of the month. Meanwhile, Binance remains the market leader in trading volumes, while U.S. exchanges need help gaining market share.
Ryder astutely observed a significant change in the distribution of volume share across exchanges, highlighting the meager influx of volume into U.S. exchanges and USD pairs. This observation is further substantiated by the surge in stablecoin volumes, which have risen from a 77% share to a staggering 95% in a little over a year.
According to Ryder’s analysis, investors are progressively shifting their focus from USD pairs to stablecoins, leading to a transformation in liquidity dynamics. To counter this trend, creating a novel payment network akin to SEN or Signet could revive liquidity and mitigate market volatility, thereby enhancing the appeal of the cryptocurrency asset class to prospective investors.
