The latest research from cryptocurrency research company Kaiko is not optimistic. In its latest report, it reminds the crypto community to pay close attention to Bitcoin's liquidity crisis.
The company also noted that the issue has become more acute since the launch of spot Bitcoin ETFs in the United States, posing challenges to market stability and investors’ trading experience.
BTC liquidity fragmentation problem becomes prominent
Kaiko analysts highlighted in their report that Bitcoin’s liquidity fragmentation persists, which is a key issue. The uneven distribution of liquidity across different exchanges has led to inconsistent prices and market volatility, especially on trading platforms with insufficient liquidity.
While Bitcoin’s liquidity fragmentation has declined in recent years, Kaiko observed that the impact of liquidity fragmentation was particularly significant during a recent large-scale sell-off in the market, which caused Bitcoin’s price to fall below the $50,000 mark. Particularly during the August 5 cryptocurrency market crash, the price of Bitcoin on Binance US (Binance.US) saw a significant price divergence from its price on more liquid platforms.
The report further states that price slippage is a key measure of liquidity, which increases during market sell-offs as liquidity decreases. The August 5 event saw an increase in Bitcoin price slippage, which was particularly evident on some exchanges and trading pairs.
Kaiko also mentioned that the Bank of Japan's rate hike decision caused the BTC/JPY trading pair on Japan's Zaif exchange to have the highest price slippage on the day of the sell-off. KuCoin's BTC/EUR trading pair was also hit hard, with a price slippage of nearly 5.5% on the day. Surprisingly, even the USD stablecoin trading pairs on Binance US and BitMEX, which are usually the most liquid, experienced an increase in price slippage of more than 3%.
Kaiko’s analysis revealed that liquidity crises not only exist between different exchanges, but even within the same exchange, there are significant differences in the liquidity of different trading pairs. For example, Coinbase's BTC/EUR trading pair showed lower liquidity than the BTC/USD trading pair in March, and after a surge in market activity, its price also deviated greatly from the broader market.
Therefore, the problem of liquidity fragmentation highlights the structural fragility of the cryptocurrency market and poses a challenge to the stability and healthy development of exchanges, investors, and the entire ecosystem.
The exacerbation of the liquidity crisis by spot Bitcoin ETFs
Kaiko pointed out in his report that with the launch of spot Bitcoin ETFs in the United States, the liquidity of the BTC/USD market is increasingly concentrated on weekdays, mainly because these ETFs control a large amount of Bitcoin's circulating supply. Unlike the traditional 24-hour cryptocurrency market, spot Bitcoin ETFs follow the business hours of traditional markets, that is, they are open for trading on weekdays and closed on weekends.
This pattern leads to greater market uncertainty over the weekend, especially as selling before the market closes on Friday can cause excessive price declines over the weekend due to lack of liquidity.
Although data from 2021 shows an overall decrease in volatility on weekends, Kaiko warned that the increased concentration of trading on weekdays has increased the risk of volatility in stressed markets on weekends. The company also highlighted the upward trend in Bitcoin prices between Monday and Friday, which may indicate that the market is more liquid on weekdays, while liquidity may be scarce on weekends. #比特币ETF #加密货币 #流动性危机 #比特币
Conclusion:
Kaiko’s report revealed the harsh reality of Bitcoin liquidity fragmentation, a phenomenon that has become increasingly apparent after the launch of spot Bitcoin ETFs and poses a challenge to market stability. The uneven distribution of liquidity leads to price fluctuations and inconsistent trading experience, especially on platforms with insufficient liquidity.
Therefore, investors need to evaluate their investment strategies more carefully, especially when facing extreme market conditions. Exchanges and market regulators should also recognize the importance of liquidity management and take effective measures to improve market transparency and operational efficiency.
As the market continues to develop, we need to recognize the importance of liquidity management and take measures to ensure the long-term health and stability of the market. This is not only related to the short-term price fluctuations of cryptocurrencies, but also to the long-term stability and growth of the entire ecosystem.
