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In the fast-paced world of cryptocurrency trading, Bitcoin Liquidity Crisis has long been recognized as the undisputed leader, boasting the highest trading volumes in the industry. However, on a tumultuous Monday, traders seeking to buy and sell bitcoin (BTC) on Binance found themselves at a relative disadvantage compared to their counterparts on Kraken and Coinbase (COIN), as revealed by data collected by Paris-based Kaiko.
Sudden Plunge in Buy-Side Liquidity
The upheaval began when Binance’s 0.1% ask depth, a critical indicator of buy-side liquidity, plummeted from a substantial 100 BTC ($30,000) to a mere 1.2 BTC. This alarming drop occurred as volatility skyrocketed, spurred by a false report circulating on social media claiming that BlackRock (BLK) had approved a spot exchange-traded fund (ETF). In a knee-jerk reaction to the rumor, the leading cryptocurrency, BTC, surged by 7.5% to reach the $30,000 mark, only to relinquish those gains once BlackRock unequivocally denied the report.
Understanding the 0.1% Ask Depth
For those unfamiliar with the term, Bitcoin Liquidity Crisis refers to the number of outstanding purchase orders positioned within 0.1% of the mid-price, which is an average of the bid and ask prices. The bid price denotes the amount at which a buyer is willing to purchase, while the ask price is the value at which a seller is ready to part with their assets. In essence, the higher the bid and ask depth creates favorable conditions. This allows for executing substantial buy and sell orders at stable prices. Consequently, lower slippage, the disparity between the anticipated and actual trade price, becomes a concern.
Broad-Based Liquidity Decline
This worrisome trend extended beyond Binance, as the 0.1% ask depth on OKX and Bybit also experienced a significant dip, falling as low as 2 BTC. In fact, the average ask depth across major exchanges dipped below 95 BTC.
The broad-based reduction in liquidity had severe repercussions, causing financial losses for several market participants. Notably, pseudonymous traders, exitpump and Omz, were among those who suffered the consequences of high slippage, with some reporting losses as substantial as 20%.
Kraken and Coinbase: The Resilient Leaders
A closer look at the data highlights the performance disparities during the liquidity meltdown. Kraken and Coinbase emerge as frontrunners in this scenario.During the crisis, these exchanges showed remarkable resilience in sustaining liquidity. This likely stems from the sophistication of their market makers. These entities are responsible for order book liquidity, as suggested by industry expert Carey.
Remaining Vigilant in the Volatile Market
The cryptocurrency market remains highly volatile and unpredictable. Traders must stay vigilant and informed for success. While Bitcoin Liquidity Crisis may have long reigned supreme, this recent liquidity crisis serves as a stark reminder. Market dynamics can change rapidly, with a single false rumor triggering a cascade of consequences.
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Disclaimer: Please note that this article serves solely for informational purposes. As such, it is not financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
