The crypto markets Have they really restarted or are the courses are above all the consequence of a new liquidity crisis ? Kaiko examines and supports this hypothesis.
Bitcoin has suddenly started to rise again. Since the beginning of March, the price of BTC shows a growth of about 17%. Over the last 7 days, the first of the crypto-assets gains another 8% to about $28,000.
This momentum is breathing new life into the crypto market. Some observers even venture to anticipate an exit from the bear market. Such a scenario might be precipitous as suggested by Kaiko researcher Conor Ryder.
A rise driven by low liquidity
Cryptocurrency markets are most volatile when liquidity is low. Prices have less support on both the downside and upside,” he reminds us in the latest market analysis published by Kaiko.
However, the liquidity is currently at a reduced level. This context is not totally new. It is the result initially of the FTX bankruptcy. Another recent factor has come to weigh on liquidity. It is the crisis which affects the banking sector with several media bankruptcies.
“ This has spilled over into the crypto-currency,” the researcher for the blockchain data company argues Kaikoemphasizing the interconnection between crypto and traditional finance. Blockchain companies, including Circle, hold accounts at affected banks.
An alternative to the SEN network is needed
The rise in prices, including in particular BTCwould be less a favorable reaction of investors and a renewal of confidence in the crypto than the consequence of liquidity pressures.
Thus, an initial drop in liquidity of $200 million was observed around March 4. This corresponds to the difficulties of Silvergate and the closing of its SEN network. For the cryptothe consequences are immediate.
SEN and the Signet payment network were two critical pieces of infrastructure for industry market makers, providing 24/7 access to USD settlements with trading firms, OTC desks and other crypto-currency companies,” Kaiko reports.
The next episode of declining liquidity coincides with the collapse of SVB and Signature banks. Now, “ liquidity situation in crypto-currency hangs in the balance as industry waits a viable alternative “.
Liquidity at a low point in the BTC markets
These pieces of context are essential to understanding the trend currently affecting the prices of major tokens, starting with Bitcoin and Ethereum.
Indeed, says Ryder, “ neither BTC nor ETH have improved their depth”.
This unchanged parameter “ shows that it was only a liquidity-induced price increase “
In fact, says the researcher, “ we are currently at our lowest level of liquidity in the BTC markets in 10 months.”
The Alameda Gap in liquidity triggered by the demise of the group’s market maker FTX “ has still not been filled and, with the recent banking problems, liquidity has taken another hit.” The situation therefore encourages caution and qualifies the rise of BTC.
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