The long-term lack of liquidity in the cryptocurrency market has been a key factor in the significant price volatility of Bitcoin over the past few weeks. FalconX's research team found that while recent trading activity partly rebounded due to expectations of Bitcoin exchange-traded funds (ETFs), the market depth this year remains at its lowest point. They measured market depth by looking at the average trading volume of Bitcoin within 1% of the current price over a 24-hour period.
In November of last year, blockchain data company Kaiko referred to the ongoing impact as the “Alameda Gap.” Researchers at Kaiko stated that this lingering effect is largely a result of market makers suffering significant losses after the FTX crash.
According to Delphi Digital data, total trading volumes on centralized exchanges (CEX) and decentralized exchanges (DEX) in the spot market are at multi-year lows.
Stablecoins' market capitalization is another measure used by analysts to gauge the health of market liquidity, as stablecoins serve as a crucial entry and exit channel for cryptocurrency traders. They are typically pegged to another currency, with the most common being the U.S. dollar. According to DeFiLlama data, the total market capitalization of stablecoins has been shrinking.
Michael Rinko, an analyst at Delphi Digital, stated: “The fundamental reason liquidity continues to flow out, rather than into the cryptocurrency market, is high interest rates.” (Bloomberg)