Bitcoin Rally Drives Recovery in Crypto Market Liquidity: Kaiko Report
Summary:
Following the shutdown of FTX and Alameda Research in November 2022, the crypto market faced a massive liquidity shortfall often termed as the "Alameda Gap." However, recent data from research firm Kaiko indicates a recovery in market liquidity to pre-FTX levels, largely due to a Bitcoin rally. Bitcoin's 2% market depth has increased by 40% year-to-date and surpassed its pre-FTX average briefly. BTC prices have also grown 60% since the beginning of the year. Additionally, BTC/USD spreads on Coinbase, Kraken, and Bitstamp have decreased, indicating improved liquidity conditions.
In the aftermath of FTX and Alameda Research's closure in November 2022, a significant liquidity shortfall plagued the market. Still, the situation has improved, according to crypto research company, Kaiko. In their recent research memo from March 18, Kaiko revealed that this "Alameda Gap," as they dubbed it, had returned to levels consistent with those pre-FTX, with the most recent Bitcoin rally playing a crucial role. The term "Alameda Gap" was coined by Kaiko in November 2022, referring to a liquidity decrease in worldwide exchanges due to monumental losses by market makers, thus emphasizing the impact major entities had on cryptocurrency markets in 2022. Kaiko noted in its recent analysis that this gap lingered for over a year as market makers kept their distance, waiting for trading activity and sentiment recovery. However, according to Kaiko, Bitcoin’s 2% market depth has increased by 40% year-to-date and momentarily exceeded its pre-FTX average of $470 million. The company explained this progress by the BTC price escalations, which has soared 60% since the start of the year, hitting a new record high of $73,750 on March 14. Additionally, Kaiko reported a decrease in spreads for BTC/USD on three major US exchanges, Coinbase, Kraken, and Bitstamp, implying the improvement in liquidity conditions. The shifts in spread may be due to several structural reasons, contributing to a cheaper trading cost in the US. Cointelegraph reported earlier that a "sell-side liquidity crisis" might affect Bitcoin later this year if institutional ETF assets inflow persists. However, there has been a significant decrease in daily ETF inflows in the past couple of days, falling under $200 million from peaks of over $500 million and a record $1 billion daily inflow last week when BTC reached a historical high.
Published At
3/19/2024 6:25:23 AM
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