Says analysts at crypto market data provider Caco crypto market have an experienceFair share of liquidity events this month, In his opinion, even though data shows that liquidity in crypto has jumped to levels seen in early March, the situation could be much worse in the long term.
Caco’s Cody Ryder wrote that the effects of the recent collapses of Silicon Valley Bank and Signature Bank could lead to a rift in payments networks. This in turn could eat away at market maker confidence for US providers, impacting liquidity and renewed adoption of crypto as an asset class,
Less Liquidity, More Volatility for Crypto
As Kaiko researcher Conor Ryder explains in a reports Shared with Invezz, cryptocurrencies experience the most volatility when liquidity – the ease with which investors can access and easily convert assets into cash without affecting the asset’s market value – is low.
Simply put, when liquidity is low, prices often lack any strong support and may see excessive movement to the downside or to the upside.
For example, bitcoin (BTC/USD) had one of its biggest weeks in 2023, with a price close to $29,000. But even in the crypto market, BTC fell sharply around $28,765 to $26,700 area. The dip has come in the form of cryptocurrencies sharesInvestor reaction in traditional financial markets reflects negative sentiment toward latest FOMC decision Fed’s 2% target,
What is the liquidity situation in the crypto markets?
The lack of liquidity in crypto has been apparent for some time, with the latest fueled by contagion from traditional financial markets. To give an example of a “worsening” situation, KAICO examines four key metrics – market depth, spreads, volumes and slippage. Some positives yes, but the overall outlook underscores the current state of liquidity in the cryptocurrency market.
In early March, the crypto market saw a $200 million drop in market depth as the Silvergate issue unfolded and crypto-banks moved to halt their SEN networks. Silicon Valley Bank and Signature Bank then collapsed, affecting nearby market makers usd Adding to the liquidity concerns in settlements and crypto.
Rider notes in the report:
“The closure of SEN and the wind-down of Signet, some of the only USD payment rails for crypto, has resulted in US exchanges being hit hard from a liquidity perspective as market makers in the region face unprecedented challenges for their operations.” is facing.”
While data shows that liquidity for the top 10 assets is back to early March levels, bitcoin’s Ruins With fiat near its 10-month low and the effects of a collapsing on-ramp, further problems could emerge. Despite the increased adoption of stablecoin pairs due to the phasing out of the USD pair, the lack of new payment networks to replace SEN or Signet could worsen liquidity conditions.
To help increase confidence in market makers and attract more liquidity to the market, Ryder says the market needs a new player to fill the USD payment rail gap. This could mean further improvements in liquidity and less volatility, which will only increase the attractiveness of crypto as an asset class to more investors.
This is what needs to happen to help kickstart the next bull cycle, says analyst noted,