Despite a bullish bitcoin surge of 40% to around $27,700 since March 10, following the collapse of Silicon Valley Bank, investors face a significant challenge: a dwindling liquidity that could prompt drastic price fluctuations.
Data provider Kaiko reveals that bitcoin's market depth is at its lowest point in 10 months, with the two leading trading pairs, bitcoin-dollar and bitcoin-tether, standing at 5,600 bitcoin (approximately $155 million).
"Liquidity will remain a challenge," said Kevin de Patoul, CEO of Keyrock, as slippage, a measure of liquidity illustrating price changes between trade placement and execution, has increased. Conor Ryder, research analyst at Kaiko, explained that slippage for purchasing bitcoin with US dollars on Coinbase is 2.5 times higher than at the start of March.
Market turmoil in the banking sector has contributed to the liquidity issues, with the collapses of Silvergate Capital and Signature Bank exacerbating the situation. The bankruptcy of Sam Bankman-Fried's FTX exchange and hedge fund Alameda Research, previously one of the largest liquidity providers in the crypto sector, has also played a role.
As investors trade cautiously due to banking crises and rising interest rates, Joseph Edwards, investment adviser at Enigma Securities, warns that "liquidity is probably going to get worse and worse."
