Bitcoin liquidity hit rock bottom due to banking crisis

Bitcoin liquidity hit rock bottom due to banking crisis

Over the past few weeks, the banking crisis has been building up out of nowhere and is still coming to an end until now. The fear is still there that this will spill over to the banks that remain, but Bitcoin (BTC) and other cryptocurrencies are precisely thriving amidst all this negative news. However, the market has calmed down a lot.

Much lower volume in the crypto market

Kaiko cipher data provider writes to a file Blog article. This company has measured the number of buy and sell orders that have been placed recently between two sessions It has been. This shows that liquidity has not been as low as it is now in 10 months – even in the aftermath of the FTX bankruptcy, it has not been as bad as it is now.

Lack of liquidity does not necessarily mean that prices are always low, just that they are more volatile. It also creates additional inefficiencies in the market. This can lead to price skews and thus to larger differences between the bid and ask prices. According to Kaiko, this is the so-called spread As for the BTCUSD trading pair on Coinbase, it is now 2.5 times higher than At the beginning of this month, when the market was not yet under the influence of the banking crisis.

This was confirmed by KAIKO’s principal investigator, Clara Medaly Decode. According to her, the situation is very dangerous, because there is also a dark side. “Once the buying pressure is gone, anything can happen to the price,” she said.

The drop in liquidity was the largest after Silvergate shut down the Silvergate Exchange Network (SEN). As a result, a volume of $200 million disappeared from the market. It happened at the beginning of March, but the liquidity is still much lower. The market depth of bitcoin and ethereum (ETH) is now down 17.64% and 16.12%, respectively, from what it was on March 1st.

Stablecoins are more popular

Stablecoins have also increased in popularity. At the start of last year, these tokens still had a 77% market share on centralized exchanges. This means that 77% of cryptocurrency purchases were made with stablecoins, and the rest of the transactions were processed with fiat deposits.

INow the situation is more extreme; 95% of all transactions are made using stablecoins. This trend soon strengthened when several banks announced that they would no longer process transactions to cryptocurrency exchanges. Binance, among others, is a victim of this.

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