Brace for Volatility: Bitcoin’s Liquidity Crunch Deepens

• Liquidity in the cryptocurrency market has decreased due to the closure of USD payment rails by Silvergate Capital and Signature’s Signet.
• Research by Conor Ryder shows that slippage has increased due to a lack of liquidity.
• Former Coinbase CTO Balaji S. Srinivasan suggests that state pressure is forcing Bitcoin markets to become more desirable, paradoxically.

Liquidity Crunch in Cryptocurrency Markets

The recent banking concerns have caused a liquidity crunch in the cryptocurrency industry, with aftermarket makers losing access to USD payment rails and bitcoin liquidity falling to a 10-month low. Market makers have been facing „unprecedented challenges“ regarding their operations, resulting in an increase in spreads and slippage due to a shortage of liquidity.

Alameda Gap

The „Alameda gap“, which was caused by the absence of one of the biggest market makers in the sector (Kaiko), has also been identified as playing a role in this decrease of liquidity.

Effect on US Exchanges

US exchanges were particularly affected by this situation, with Silvergate Capital and Signature’s Signet payment network both closing down and disrupting liquidity significantly – leading to an increase in slippage when selling $100k worth of BTC on Coinbase’s btc-usd pair.

Paradoxical Effect

Former Coinbase CTO Balaji S. Srinivasan commented on this study, pointing out that as liquidity decreases under state pressure, less buying power is required for BTC/USD rates to „moon“. He believes that although it is unlikely that state pressure can completely close Bitcoin markets off from investors, it may be wise not to wait around for too long before making investments.

Conclusion

This research highlights how much influence banking situations can have on cryptocurrency markets, with liquidity becoming increasingly difficult for market makers and investors alike – resulting in higher spreads and slippage when trading large amounts at once. Despite this challenge however, former Coinbase CTO Balaji Srinivasan points out how these conditions might be beneficial as they could result in better returns than were previously available if investments are made soon enough!