The collapse of bank networks at the start of this month has created significant risks for the health of the cryptocurrency market. Despite a rebound in Bitcoin prices from their March low of almost $28,900, the banking crisis continues to unsettle the market.
The closure of Silvergate’s SEN network and Signature’s Signet has led to concerns over low liquidity in the cryptocurrency market, with “liquidity is king” being an appropriate proverb to describe its significance.
Clara Medalie, Head of Research at Kaiko, has described the current situation as “quite dangerous,” with potential large price fluctuations in both directions.
The liquidity crisis first appeared with a drop of $200 million in market depth at 1% after Silvergate’s SEN network was closed. Market depth at 1% is calculated by adding the total bid and ask prices within 1% of the average price for the top 10 cryptocurrencies.
Market depth for Bitcoin and Ethereum has decreased by 16.12% and 17.64%, respectively, compared to their opening levels last month.
According to Kaiko analyst Conor Ryder, “We are currently at the lowest liquidity level in the BTC market in 10 months, even lower than the aftermath of FTX.”
The liquidity crisis has also caused inefficiencies such as high slippage and large spreads. The Coinbase BTC-USD pair currently has a slippage level almost three times higher than at the beginning of March.
The market share of fiat dollars and stablecoins has also undergone significant changes, with the volume of stablecoins on centralized exchanges increasing from 77% to 95% in just over a year.
The collapse of bank networks highlights the continued dependence of the cryptocurrency market on the traditional banking system for liquidity. As the industry matures and decentralizes, it will be intriguing to see how it responds to crises like these in the future.
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This article was republished from azcoinnews.com
