Over the past few weeks, a banking crisis has been growing out of nowhere that is still reaching its final mark even now. The fear still exists that it will spill over to the banks that are still standing, but bitcoin (BTC) and other cryptocurrencies are thriving precisely amid all this negative news. However, the market has calmed down a lot.
Much less volume in crypto market
That writes crypto data provider Kaiko in a blog article. This company has measured how many buy and sell orders there have been recently between two courses have been. This shows that liquidity has not been as low as it is now in 10 months – even in the wake of FTX’s bankruptcy, it was not as bad as it is now.
Lack of liquidity does not necessarily mean that prices are always low, instead they are extra volatile. It also creates extra inefficiencies in the market. This can lead to deviating prices and thus to greater differences between bid and ask prices. According to Kaiko, this so-called spread for the BTCUSD trading pair on Coinbase is now two and a half times higher than at the beginning of this month, when the market was not yet under the spell of the banking crisis.
Kaiko’s lead researcher, Clara Medalie confirmed this Decrypt. According to her, the situation is quite dangerous, because there is also a dark side. “As soon as the buying pressure disappears, anything can happen to the price,” she said.
The dip in liquidity was greatest after Silvergate closed its Silvergate Exchange Network (SEN). As a result, $200 million in volume disappeared from the market. That happened at the beginning of March, but liquidity is still much lower. The market depth of bitcoin and ethereum (ETH) is now 17.64% and 16.12% lower, respectively, than on March 1.
Stablecoins more popular
Stablecoins have also increased in popularity. At the beginning of last year, these tokens still had a market share of 77% on centralized exchanges. That means 77% of crypto purchases were made with stablecoins, the rest of the transactions were processed with fiat currency deposits.
Inow the situation is much more extreme; 95% of all transactions are made with stablecoins. This trend quickly strengthened when several banks announced that they would no longer process transactions to crypto exchanges. Binance, among others, is a victim of this.