Experts flag reduced liquidity in the crypto market after the FTX collapse

The ability to execute large trades in digital assets without noticeably moving their prices has fallen markedly after the FTX collapse., according to Kaiko analysts.

A bright spot amid the FTX contagion: #BTC liquidity has improved📈

Since last week, 2% market depth has recovered to ~10k BTC.

Our latest analysis: https://t.co/vSAc8wvN68 pic.twitter.com/fVsnFYrw2d

— Kaiko (@KaikoData) November 21, 2022

“There are only a handful of market makers dominating the cryptocurrency market, including Wintermute, Amber Group, B2C2, Genesis, Cumberland and Alameda, now-defunct. With the loss of the latter we can expect a significant drop in liquidity, which we have named the Alameda gap,” — the analysts said.

They estimate that the depth of order books on Kraken, Binance and Coinbase fell by 57%, 25% and 18%, respectively, in the wake of the Sam Bankman-Fried incident.

Weekly volumes on Bitcoin exchanges collapsed to around $100 billion. The steepest declines were in Huobi, Bitfinex and BitMEX metrics.

The deterioration in market conditions affected L1 assets the most, with DeFi tokens to a lesser extent.

In a discussion with The Block, Wintermute CEO Evgeny Gaevoy explained the liquidity decline as the result of market makers revising their positions on certain platforms.

“There are two factors that explain the situation. On one hand, large market participants have less access to bitcoin loans, since most lenders are overly cautious or simply insolvent. At the same time they aggressively reduce their risk on most exchanges, as the full extent of contagion remains unclear,” he explained.

Binance refused to rescue Genesis Global Capital, according to The Wall Street Journal.

On November 14, the lending platform sought emergency access to a $1 billion credit line, citing a liquidity shortage. The request came before the suspension of withdrawals and the issuance of new loans following the FTX collapse.

Earlier, amid Genesis freezing lending operations and Grayscale’s refusal to disclose reserves within the community, doubts arose about the resilience of DCG itself.

Previously at Multicoin Capital predicted the imminent collapse of trading firms due to FTX and said they expected to hear further statements from industry participants about problems.

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