Bitcoin Liquidity Falls Low. Bitcoin (BTC) market liquidity fell to its lowest level in the last 10 months, despite the increase in price during the first quarter of 2023. The drying up of Bitcoin liquidity is partly due to bank runs or massive withdrawals by customers in the United States and a regulatory crackdown on crypto companies.
BTC’s price has surged 45 percent this year, making it one of the best performing assets.The price increases come amid a looming financial crisis in traditional financial markets, with stocks and bonds having one of their worst years yet.As a result of the worsening financial crisis, several banks have collapsed.
The banking crisis also had a direct impact on the crypto ecosystem. The collapse of crypto-friendly banks, such as Signature Bank and Silicon Valley Bank, wiped out the crucial US dollar payment channel for cryptocurrencies, leading to a liquidity crunch, especially in US exchanges.
The liquidity crisis also resulted in increased price volatility forcing traders to pay more fees in slippage.Slippage refers to the difference between the expected price and the price used when the trade is in progress.
For a sell order worth 100 thousand US dollars, the slippage for the BTC/USD pair on the Coinbase crypto exchange increased 2.5 times in early March. During the same timeframe, the slippage of the BTC/USDT pair on Binance barely moved.
Bitcoin Liquidity Falls Low. The liquidity crunch has also led to higher price volatility on US crypto exchanges, where the price differential between BTC and US dollar pairs has increased drastically compared to non-US exchanges.
For example, the price of BTC on Binance US is more volatile than the average price on 10 other crypto exchanges.The head of research from on-chain data analytics firm Kaiko, Conor Ryder, explains the drastic impact of the liquidity crunch on traders and the market.
He noted that stablecoins are replacing US dollar pairs, and while this reduces the impact of US banking problems, they have an adverse effect on liquidity in the United States. Ryder added that this would indirectly hurt investors in the world’s largest economy.