Bitcoin Liquidity Exploding, The “Alameda Gap” Is No More

On March 19, Bitcoin prices fell to as low as $61,500. However, even as fear reigned, Kaiko, a blockchain analytics platform, observed that the coin’s liquidity across major crypto exchanges, including Binance and Coinbase, has been recovering steadily.

When writing, the Bitcoin market liquidity is above the “Alameda Gap,” a massive boost for traders, including those looking to double down ahead of Bitcoin halving. 

Bitcoin Liquidity Jumps Above The “Alameda Gap”

Liquidity is crucial in Bitcoin and crypto trading in general. It simply refers to how easy it is to convert fiat to crypto or crypto to fiat without impacting price. The higher the liquidity, the easier to trade and receive assets at a fair price.

Over the past two years, since the collapse of FTX, the popular crypto exchange, and its investment arm, Alameda Research, there has been a notable liquidity drop across the crypto trading scene, especially in Bitcoin. The observation, dubbed the “Alameda Gap,” negatively impacted liquidity and, by extension, market stability.

BTC liquidity improving | Source: Kaiko
BTC liquidity improving | Source: Kaiko

Fortunately, recent data from Kaiko paints a much brighter picture. In their latest report, the Bitcoin 2% market depth, a key liquidity indicator that measures the depth of the market by showing the volume of buy and sell orders within 2% of the current price, has fully recovered. Most importantly, it is now at the pre-FTX average of $470 million, pointing to renewed confidence in the Bitcoin secondary market.

Rising Prices, Tight Spread Drivers Of Liquidity

In their analysis, Kaiko pointed the refreshing bounce to multiple factors. At the top of the list, the analytics platform said the recent surge in Bitcoin prices has played a crucial role. Bitcoin is currently trading above $64,000 when writing.

However, in March, prices soared to as high as $73,800. The spike follows the approval of several spot Bitcoin exchange-traded funds (ETFs) in January. 

Moreover, Kaiko added that tight Bitcoin trading spreads on major exchanges like Coinbase, Kraken, and Bitstamp deepened the overall market liquidity. Usually, the higher the liquidity, the tighter the bid-ask spread becomes. This development suggests that more people keep trading and engaging with the market.

Bitcoin price trending downward on the daily chart | Source: BTCUSDT on Binance, TradingView

It is yet to be seen whether Bitcoin’s liquidity will increase ahead of the highly anticipated halving. The event, set for mid-April, halves miner rewards but will make the coin scarcer. Rising prices, expected after halving, will likely draw more people, further deepening liquidity.

Feature image from Canva, chart from TradingView

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