Crypto Market Liquidity Recovers with “Alameda Gap” Dissapearing

1. Kaiko reports significant recovery in crypto market liquidity, with the “Alameda Gap” nearly disappearing.
2. Bitcoin’s surge in prices contributes to the improvement in market depth, with its market depth up 40% year-to-date.
3. BTC/USD spreads on major U.S. exchanges have declined, indicating improved liquidity conditions and lower trading costs.

According to a recent bulletin from crypto research firm Kaiko, the liquidity gap in the crypto market, known as the “Alameda Gap,” has nearly vanished as market liquidity rebounds to pre-collapse levels. This recovery comes after a prolonged period of decreased liquidity following the shutdown of FTX and Alameda Research in November 2022.

Recovery to Pre-FTX Levels

Kaiko’s data indicates that the liquidity gap, which emerged due to significant losses incurred by market makers. It has now recovered to levels seen prior to the FTX shutdown. The term “Alameda Gap” was coined by Kaiko to describe the drop in liquidity on global exchanges caused by the absence of major market makers.

The recovery of market depth has been attributed in part to the recent surge in Bitcoin prices. Bitcoin’s market depth has increased by 40% year-to-date, briefly surpassing its pre-FTX average of $470 million.

This surge in prices, with Bitcoin hitting a new all-time high of $73,750 on March 14, has contributed to the improved liquidity conditions in the market.

Improved Liquidity Conditions

Kaiko also observed a decline in BTC/USD spreads on major U.S. exchanges like Coinbase, Kraken, and Bitstamp. In fact, it is indicating a meaningful improvement in liquidity conditions. In fact, the reduced spreads suggest that the cost of trading Bitcoin in the U.S. has become more affordable, potentially attracting more market participants.

While the recent recovery in liquidity is promising, concerns remain about potential liquidity challenges in the future. Reports suggest that Bitcoin could face a “sell-side liquidity crisis” if institutional exchange-traded fund (ETF) inflows continue. However, daily ETF inflows have slowed in recent days, indicating a more stable market environment.

As the crypto market continues to evolve, monitoring liquidity trends and market dynamics remains crucial for investors and industry participants alike. The recent recovery in liquidity levels offers a positive sign for market stability and growth moving forward.