Crypto market continue to struggle with liquidity post-ETFs despite improvements – Kaiko Crypto market continue to struggle with liquidity post-ETFs despite improvements – Kaiko
Despite enhancements witnessed over the past year, crypto markets still deal with significant slippage caused by the lack of liquidity.
2 min read
Updated: Aug. 29, 2024 at 11:59 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs) in the US helped improve liquidity in the crypto market, but it’s still not enough to absorb larger volatility, according to an Aug. 29 Kaiko report.
Kaiko said that liquidity has improved significantly since the FTX collapse in November 2022, with the daily trading volume of the top 10 crypto platforms growing 30% over the past year.
However, the report added that trading volume alone is not the most reliable liquidity indicator by itself, as volumes can be heavily influenced by fees and incentives offered by trading platforms.
Not ready for major impacts
Kaiko analysts found that trading volume should be coupled with market depth, which is the ability to sustain relatively large market orders without impacting the price of the asset. As a result, the volume-to-market depth ratio paints a more accurate picture, as volume can heavily surpass liquidity fueled by wash trading.
By applying this ratio, Kaiko found that the crypto market is not yet ready to brace for major impacts. The effects of low liquidity were witnessed most recently when Bitcoin orders were met with high slippage during the market crash on Aug. 2 after the Bank of Japan’s sudden rate hike.
Slippage occurs when there isn’t enough liquidity available to absorb a market order at a certain price, negatively affecting trading results. Some trading pairs, such as KuCoin’s BTC-EUR, saw slippage surpassing 5% that day.
Moreover, the report also identified slippage variations during different times of the day, which also suggests a lack of proper liquidity in the current state of the market.
Supply overhang
Kaiko also noted that a “supply overhang” continues to exert pressure on the crypto markets’ liquidity. The term refers to the amount of crypto that could be dumped in the market, driving prices down.
The first example mentioned by Kaiko is Mt. Gox’s estate, which has over 46,000 BTC — worth more than $2 billion — left to redistribute. The report noted that the first batch’s distribution was followed by a heavy dump.
Furthermore, governments such as the US, the UK, China, and Ukraine hold Bitcoin, which could be sold at any time as evidenced by Germany’s recent selling spree. The US government alone has over 200,000 BTC spread across various wallets.
Mentioned in this article
Author 
Gino Matos
Gino Matos is a law school graduate and a seasoned journalist with six years of experience in the crypto industry. His expertise primarily focuses on the Brazilian blockchain ecosystem and developments in decentralized finance (DeFi).
Editor Editor 
Assad Jafri
AJ, a passionate journalist since Yemen's 2011 Arab Spring, has honed his skills worldwide for over a decade. Specializing in financial journalism, he now focuses on crypto reporting.
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In this article
Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
Ethereum
$2,432.54
Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (DApps).
Kaiko
Kaiko is a market data provider in the blockchain-based digital assets space, founded in 2014, that provides institutional investors and market participants with enterprise-grade data infrastructure.
KuCoin
KuCoin is a global cryptocurrency exchange for numerous digital assets and cryptocurrencies that launched in September 2017.
FTX
FTX is a defunct cryptocurrency exchange, currently in bankruptcy proceedings, that was founded by Sam Bankman-Fried and Zixiao “Gary” Wang in May 2019.
