Crypto Markets Struggle with Liquidity Despite ETF Boost, Reports Kaiko

In Brief:

Despite improvements from US Bitcoin and Ethereum ETFs, the crypto market still faces significant liquidity challenges, with issues like slippage during volatility.

Kaiko's report highlights the need for better market depth, noting that supply overhangs from entities like Mt. Gox and governments could further impact liquidity.

‍

Crypto Markets Struggle with Liquidity Despite ETF Boost, Reports Kaiko

‍

Despite the introduction of spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs) in the US, the cryptocurrency market continues to grapple with liquidity issues, according to a report from Kaiko. Although liquidity has improved since the FTX collapse in November 2022, with a 30% increase in daily trading volume on top platforms, it's insufficient to handle significant market volatility.

‍

Volume Alone Does Not Indicate Liquidity

‍

Kaiko analysts emphasize that trading volume should be considered alongside market depth—the ability to handle large orders without affecting asset prices. The volume-to-market depth ratio provides a clearer picture, revealing that the crypto market remains unprepared for major impacts. Recent market events, like the August 2nd Bitcoin slippage following the Bank of Japan’s rate hike, underscore these liquidity challenges.

‍

Supply Overhang and Market Pressure

‍

The report also identifies a "supply overhang" as a factor pressuring market liquidity. Significant holdings, such as Mt. Gox’s 46,000 BTC and various government-owned Bitcoin, could be dumped, affecting prices. Kaiko points out that recent sales, like Germany's, illustrate the potential for sudden market impacts.

‍