As per Kaiko's data, Bitcoin's liquidity is currently on par with the levels seen following the November 2022 crash of FTX. In addition to market liquidity, BeInCrypto had previously noted that trading volume hasn't shown substantial recovery either.
Bitcoin Liquidity Remains at Q4 2022 Levels.
Following the FTX collapse, Alameda Research, which serves as the trading division of Sam Bankman-Fried's conglomerate, experienced its own downfall. Consequently, the "market depth" witnessed a 60% decline, and Bitcoin has yet to regain its former strength.
This primarily implies that modest capital injections can often lead to more significant price fluctuations. However, it's important to note that this isn't entirely a positive development, as even a small amount of short selling can exert downward pressure on Bitcoin's price. Therefore, market participants must exercise heightened vigilance when dealing with Bitcoin.
Nevertheless, there is optimism that liquidity may rebound if the Bitcoin spot ETF receives approval. Gradually, but steadily, liquidity is showing signs of returning to previous levels. In the interim, it has already risen from 60% to 50%.
The potential authorization of a spot Bitcoin ETF could represent another enhancement in market liquidity. This surge in liquidity holds significant importance, especially for major investors.
As the amount of capital in circulation within the market increases, the likelihood of unexpected price fluctuations diminishes. In this regard, the introduction of a spot Bitcoin ETF could also bode well for the stability of Bitcoin.
