Despite an optimistic quarter in terms of price gain, Bitcoin (BTC) market liquidity has fallen to a 10-month low. The lack of liquidity is being ascribed in part to the bank run in the United States as well as continuing regulatory measures against crypto firms. At the moment of writing, BTC is going for $28,302.93.
Bitcoin’s price has increased by 45% in 2023, making it one of the best-performing investments. The price increases come as the conventional financial market faces an impending financial crisis, with stocks and bonds having one of their worst years. Several institutions have failed as the financial situation has worsened. According to Coinglass statistics, BTC/USD profits of 23% almost equal its performance in 2021, with 2013 staying the most volatile year.
The banking crisis has also had a direct effect on the cryptocurrency ecosystem. The failure of crypto-friendly institutions like Silicon Valley Bank and Signature Bank eliminated critical US dollar payment lines for crypto. These banks would provide an arena for the exchange of cryptocurrencies. This has resulted in a liquidity problem, particularly in US exchanges.
Along with the banking conundrum, the U.S. Securities and Exchange Commission (SEC) has been raining down hard on the crypto industry. There have been demands of setting proper rules and regulations for the market to avoid confusion between the SEC and the crypto industry. SEC has been hitting firms with Wells notice with the latest victim being Coinbase. The Chair of the SEC is set to come in front of Congress to defend his actions against the crypto industry.
The liquidity crisis has also raised price fluctuation, requiring dealers to pay higher slippage fees. The price disparity between the anticipated price of a transaction and the price at which it is completely executed is referred to as slippage. Slippage for the BTC/USD combination on Coinbase increased by 2.5 times for a $100,000 sell transaction in early March. Binance’s BTC/USDT pair’s slippage scarcely changed during the same period.
The liquidity crisis has also increased price volatility on US exchanges, with the price difference between BTC and US currency combinations increasing dramatically when compared to non-US platforms. The price of BTC on Binance.US, for example, is more volatile than the average price across ten different exchanges.
Conor Ryder, research head at on-chain data analytics company Kaiko, described how the liquidity problem has had a significant effect on traders and the market. He mentioned that stablecoins are taking the place of US currency units. This lessens the effect of US banking problems, but as we’ve seen, it has an impact on liquidity in the US, which will harm investors there indirectly. Stablecoins now account for 95% of traffic versus USD.