On March 19, bitcoin prices fell to $61,500. However, even when fear reigned, Kaiko, a blockchain analytics platform, observed that currency liquidity on major crypto exchanges including Binance and Coinbase has been steadily recovering.
As of this writing, bitcoin market liquidity is above the “Alameda Gap,” a big boost for traders, including those looking to double down before bitcoin halving.
bitcoin Liquidity Jumps Above 'Alameda Gap'
Liquidity is crucial in trading bitcoin and cryptocurrencies in general. It simply refers to how easy it is to convert fiat to crypto or crypto to fiat without affecting the price. The greater the liquidity, the easier it is to trade and receive assets at a fair price.
Over the past two years, since the collapse of popular cryptocurrency exchange FTX and its investment arm, Alameda Research, there has been a notable drop in liquidity across the entire cryptocurrency trading scene, especially in bitcoin. The observation, called the “Alameda Gap,” negatively affected liquidity and, by extension, market stability.
Fortunately, recent data from Kaiko paints a much brighter picture. In its latest report, bitcoin's 2% market depth, a key liquidity indicator that measures market depth by showing the volume of buy and sell orders within 2% of the current price, has fully recovered. Most importantly, it is now at the pre-FTX average of $470 million, pointing to renewed confidence in the secondary bitcoin market.
Rising prices and tight spreads boost liquidity
In his analysis, Kaiko pointed to the refreshing rebound to multiple factors. At the top of the list, the analytics platform said that the recent rise in bitcoin prices has played a crucial role. bitcoin is currently trading above $64,000 at the time of writing.
However, in March, prices shot up to $73,800. The rise follows the approval of several spot bitcoin exchange-traded funds (ETFs) in January.
Furthermore, Kaiko added that bitcoin's tight trading spreads on major exchanges such as Coinbase, Kraken, and Bitstamp deepened the overall market liquidity. Typically, the greater the liquidity, the tighter the bid-ask spread becomes. This development suggests that more people continue to trade and interact with the market.
It remains to be seen whether bitcoin liquidity will increase before the long-awaited halving. The event, scheduled for mid-April, will halve miner rewards but make the coin more scarce. The price increase, which is expected after the halving, will likely attract more people, further deepening liquidity.
Featured image from Canva, TradingView chart
