espite a bullish quarter with price gains, the liquidity of the Bitcoin market has hit a 10-month low. This is thought to be due in part to the bank run in the United States as well as regulatory actions against crypto companies.
In 2023, BTC has seen a remarkable 45% price surge, positioning it among the top-performing assets. This increase comes at a time of a severe financial crisis in the traditional market, with stocks and bonds experiencing a dismal performance.
The crisis has caused several banks to collapse, directly affecting the cryptocurrency ecosystem. The downfall of crypto-friendly banks like Silicon Valley Bank and Signature Bank has eliminated crucial U.S. dollar payment rails for crypto, causing a liquidity crisis, particularly for U.S.-based exchanges.
As a result of the liquidity crunch, traders are facing heightened price volatility and being forced to pay more fees due to slippage. Slippage refers to the difference in price between the expected price of a transaction and the actual price at which it is executed. In early March, the slippage for the BTC/USD pair on Coinbase rose by 2.5 times for a $100,000 sell order, whereas Binance's BTC/USDT pair experienced minimal slippage during the same period.
Due to the liquidity crunch, price volatility has risen on U.S.-based exchanges, resulting in a significant increase in price discrepancy between BTC and U.S. dollar pairs compared to non-U.S. exchanges. This is evident in the case of Binance.US, where the price of BTC is considerably more volatile than the average price across ten other exchanges.
According to Conor Ryder, who serves as the research head of Kaiko, an on-chain data analytics firm, the liquidity crisis is having a severe impact on traders and the market. He explained that stablecoins are gradually replacing U.S. dollar pairs, which somewhat mitigates the effect of the banking issues in the United States. However, it negatively affects liquidity in the country, which ultimately harms investors indirectly.
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