Regulatory waves impact BTC and ETH liquidity in the U.S. Assessing…

• Bitcoin and Ethereum’s liquidity has continued to drop on US crypto exchanges.
• Regulatory uncertainty has persisted, which might lead to more drops.

Navigating the regulatory environment in the U.S. has proved challenging for most cryptocurrency projects. And the consequences are becoming apparent. The Securities and Exchange Commission (SEC) published lists of cryptocurrencies classified as securities months ago.

Nonetheless, assets like Bitcoin [BTC] and Ethereum [ETH], which were not categorized as securities, appear to be experiencing the effects of these regulatory developments.

Bitcoin Ethereum liquidy declines

According to a recent report from Kaiko, Bitcoin and Ethereum liquidity in the U.S. witnessed a decline. The data revealed that the portion of liquidity for these assets on U.S.-based exchanges decreased to approximately 43%.

This was down from the 49% recorded at the start of 2023. Conversely, the liquidity depth on exchanges outside the US had risen to 57% from the initial 51%. 

Source: Kaiko

Potential causes of the Bitcoin Ethereum liquidity decline

The ongoing legal action initiated by the CFTC and SEC against Binance and Coinbase could contribute to the liquidity decline. Back in March, lawsuits were filed alleging that Binance had operated a derivatives trading platform in the US, facilitating trades for cryptocurrencies classified as commodities.

Furthermore, in conjunction with the CFTC’s lawsuit, the SEC sued Binance and Coinbase. This was on the grounds of offering unregistered securities to the general public, among other accusations.

Furthermore, these legal actions referenced multiple tokens. The accusations also U.S.-based exchanges should refrain from trading these tokens. Considering that Binance and Coinbase are the largest exchanges in the U.S. and globally, halting the trading of these listed tokens can significantly impact liquidity, even for flagship cryptocurrencies like BTC and ETH.

Moreover, the U.S. faced the collapse of Silvergate and Signature banks earlier in the same year. These banks had been crypto-friendly and instrumental in facilitating liquidity flows into exchanges. Their demise created increased difficulty for institutional players to acquire Bitcoin, Ethereum, and other cryptocurrencies using fiat currencies. Following their collapse, most crypto exchanges temporarily suspended USD deposits.

Decline likely to persist 

While the 6% reduction in Bitcoin and Ethereum liquidity on US exchanges might seem modest, there exists a likelihood of this trend intensifying. This potential increase could be attributed to the growing uncertainty surrounding the regulatory landscape within the country.