BTC Price Analysis: Bitcoin’s Liquidity Crunch Deepens: Brace for Volatility

Amid the banking concerns this month, the liquidity situation in cryptocurrencies has gotten worse, according to researcher Conor Ryder. His recent study reveals that aftermarket makers lost access to USD payment rails, and bitcoin liquidity fell to a 10-month low. 

The analysis also showed how much less liquid the BTC markets are now than they were during the FTX and Alameda collapse. The “Alameda gap,” as it was known at the time, was caused by the absence of one of the biggest market makers in the sector, according to Kaiko.

Liquidity in the U.S. exchanges was disrupted by the closure of Silvergate Capital and Signature’s Signet payment network, two crucial players of infrastructure for market makers in the area.

He said that we are in this situation because the market makers are facing “unprecedented challenges” to their operations. “We can see the difference in reaction between US and non-US exchanges with more severe reactions to some of the liquidity issues of the last month,” Ryder added. He issues a warning that the loss of simple fiat access might have longer-term repercussions.

“On a $100k sell order, Coinbase’s btc-usd pair has increased by 2.5x the slippage it started the month at Binance’s btc-usdt pair’s slippage meanwhile barely moved,” he said. 

The research also covered how the absence of USD payment rails had an impact on liquidity, resulting in spreads becoming more unpredictable as banking troubles grew worse and slippage increasing as a result of a shortage of liquidity.

In response to Ryder’s study, former Coinbase CTO Balaji S. Srinivasan, who is now in the news for his $1 million Bitcoin bet, said, “Interestingly, as the liquidity of Bitcoin markets decreases under state pressure, it takes less buying to get USD/BTC to moon. I don’t think the state can close it fully, but we shouldn’t wait. Paradoxically, closing the exit makes the exit more desirable in more ways than one.”