Kaiko, a cryptocurrency research organization, examined the “Alameda Gap” that resulted from the collapse of the FTX exchange and its sister company, Alameda. According to the analysis, the depth of the bitcoin market has decreased significantly since November, when the FTX exchange collapsed.
Alameda Gap Started with Bankruptcy Rumours
In 2018, the bankruptcy of well-known companies and a series of industry scandals have reduced liquidity in cryptocurrency markets. Although prices have recovered this year, the liquidity gap, dubbed the “Alameda Gap” by cryptocurrency research firm Kaiko, continues to shrink relatively, but it still appears to be significant.
According to this firm, liquidity has not returned to pre-FTX collapse levels. Despite the persistence of this liquidity gap in February, BTC market depth is well below November levels. The number of BTC/USDT trading orders that deviated less than 2% from the average price on sixteen exchanges was nearly 8,000 in February, down 40% from October.
The Decline Was Incredible
“It’s not just Alameda that is affected, other market makers are becoming more cautious,” said Riyad Carey, a research analyst at Kaiko. “With less liquidity, prices can be more volatile in both directions,” he said.
According to the study, bitcoin liquidity declined the most on smaller exchanges, with Gemini and Kraken seeing a drop of nearly 60 percent.
2,000 BTC Drop Worries Everyone
Although market depth increased slightly last week, market makers were not impressed as volatility fell by around 2,000 BTC in February. This was exacerbated by a more than 50 percent drop in the USDT market on Binance between Feb. 11 and 17, the sources said.
According to the researchers, market makers play a crucial role in the liquidity-sensitive cryptocurrency market, where they trade coins. However, as they are more cautious in times of crisis, low liquidity levels prevent transactions between buyers and sellers. This increases volatility in the market.
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