Despite Bitcoin’s remarkable 160% gain over the past month, concerns loom in the crypto markets, revealing potential risks and inefficiencies. The ease of buying and selling Bitcoin has increased for investors, but the aftermath of the FTX collapse continues to impact market efficiency and raise apprehensions among sophisticated trading firms.
Market Movers:
Recent price declines in Bitcoin may be attributed to low liquidity, as suggested by crypto data analytics firm Kaiko. Liquidity, defined as the ease of selling an asset for cash, has implications for investor risk, particularly when converting Bitcoin into cash near the prevailing market price.
Although Bitcoin’s market depth, a key liquidity measure, has improved since the end of December, it remains below pre-FTX collapse levels. Kaiko notes that this circumstance “could also explain the strong price move” observed in January. Market depth is determined by assessing the number of orders within a price range waiting to be filled, indicating the market’s ability to sustain relatively large orders without significant price impact.
Bitcoin’s 2% market depth for BTC-USD and BTC-USDT trading pairs across 14 exchanges has not fully recovered to its pre-FTX collapse levels, which exceeded 10,000 Bitcoin. This suggests that market makers have not returned in full force, according to Kaiko’s report. In January, market depth approached 4,000 Bitcoin for the first time in over a month, indicating ongoing challenges in market recovery post-FTX collapse.
This information is not legal advice. Do your own research before making any decisions. Only invest what you can afford to lose and seek independent financial advice if needed. Understand the risks involved before purchasing any cryptoassets.