The introduction of Spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs) in the US has helped improve liquidity in the crypto market. However, according to an August 29 Kaiko report, it is still not enough to absorb larger volatility.
According to Kaiko, liquidity has improved significantly since the FTX collapse in November 2022. The daily trading volume of the top 10 crypto platforms has grown by 30% over the past year.
However, the report highlights that trading volume alone is not the most reliable liquidity indicator. This is because volumes can be heavily influenced by fees and incentives offered by trading platforms.
Kaiko analysts recommend that trading volume should be coupled with market depth to get a more accurate picture of liquidity. Market depth refers to the ability to sustain relatively large market orders without impacting the price of the asset.
The volume-to-market depth ratio provides a more accurate assessment of liquidity. Kaiko found that the ratio suggests that the crypto market is not yet ready to absorb major impacts.
Slippage occurs when there isn’t enough liquidity available to absorb a market order at a certain price, negatively affecting trading results. During the market crash on August 2, Bitcoin orders were met with high slippage, with some trading pairs experiencing slippage of over 5%.
The report identifies slippage variations during different times of the day, suggesting a lack of proper liquidity in the current state of the market.
A “supply overhang” is a term used to describe the amount of crypto that could be dumped in the market, driving prices down. Kaiko notes that Mt. Gox’s estate, the first batch of which was distributed following a heavy dump, is an example of supply overhang.
In addition, governments such as the US, UK, China, and Ukraine hold Bitcoin that could be sold at any time. The report highlights Germany’s recent selling spree as evidence of this.
In conclusion, while liquidity has improved somewhat since the FTX collapse, the crypto market is still not ready to absorb major impacts. The lack of liquidity is highlighted by the occurrence of high slippage during market crashes. Supply overhang is also a major concern for liquidity, with governments and others holding significant amounts of crypto that could be dumped on the market at any time.
A: The two key indicators of liquidity are trading volume and market depth. Trading volume alone is not reliable, as it can be influenced by fees and incentives. Market depth, on the other hand, provides a more accurate assessment of an asset’s ability to absorb large trades without impacting the price.
A: Slippage is a phenomenon that occurs when there isn’t enough liquidity available to absorb a market order at a certain price, resulting in a less favorable outcome for traders. It can have significant implications for trading results, particularly in liquid markets.
A: A supply overhang is the amount of crypto that could be dumped in the market, driving prices down. This can happen when governments, exchanges, or other entities hold significant amounts of crypto that can be sold at any time, putting downward pressure on prices.
A: The volume-to-market depth ratio provides a more accurate assessment of liquidity by combining trading volume with market depth. This ratio helps to identify whether the market can absorb large trades without impacting prices, and can be used to get a more comprehensive view of liquidity than trading volume alone.
rewrite this content China has launched a new operations center in Shanghai dedicated to advancing the digital yuan.The People’s Bank...
rewrite this content Bitcoin’s spot price movement throughout the third quarter of 2025 and its recent dip align closely with...
rewrite this content Plasma’s XPL token posted a 113% recovery to $1.54 within hours of crashing from $0.93 to $0.7218...
rewrite this content A network of crypto wallets connected to Russian state-linked entities helped move more than $8 billion in...
