In a recent report, crypto research firm Kaiko highlighted the Bitcoin liquidity crisis, which has been exacerbated since the launch of the US Spot Bitcoin ETFs. The firm pointed out that liquidity fragmentation continues to persist for Bitcoin, leading to price discrepancies across exchanges. This uneven distribution of liquidity across exchanges results in unstable prices, especially on less liquid platforms.
Despite a reduction in liquidity fragmentation over time, Kaiko noted that it was particularly evident during a recent sell-off that saw Bitcoin drop below $50,000 for the first time since February. The firm cited an example of Binance US, where Bitcoin’s price diverged from more liquid platforms during the crypto crash on August 5.
Kaiko also highlighted the increase in price slippage as a key indicator of liquidity during market sell-offs. The research firm observed that price slippage spiked during the August 5 sell-off, with some exchanges and trading pairs experiencing more pronounced effects. For instance, Japan’s Zaif BTC-JPY pair and KuCoin’s BTC-EUR pair saw significant slippage during the sell-off day.
Furthermore, Kaiko emphasized that liquidity crises not only vary across different exchanges but also among different trading pairs on the same exchange. The research firm gave an example of Coinbase’s BTC-EUR pair diverging significantly from the broader market in March due to heightened market activity.
Kaiko also discussed how the liquidity in BTC-USD markets is increasingly concentrated during weekdays, a trend that has been intensified by the US Spot Bitcoin ETFs. These ETFs hold a significant amount of Bitcoin’s circulating supply and operate within traditional market hours, which can lead to worsened weekend uncertainty and amplified price impacts during sell-offs.
The research firm noted that weekend volatility has generally declined since 2021, but increased weekday trading concentration has raised the risk of sharp weekend price swings during market stress. Kaiko highlighted a 14% price gain for Bitcoin between the US market open on Monday and its Friday close last week as an example of this heightened trading concentration.
In conclusion, Kaiko’s report sheds light on the ongoing Bitcoin liquidity crisis and its impact on price stability across exchanges. The firm’s analysis underscores the need for improved liquidity management strategies to address the fragmentation and volatility in the crypto market. As the market continues to evolve, monitoring liquidity trends and addressing liquidity disparities will be crucial for ensuring a more stable and efficient trading environment for cryptocurrencies.
