Liquidity Crunch Hits Bitcoin Traders on Binance During Volatility Spike

• Binance, the world’s largest crypto exchange, faced a liquidity challenge during a Bitcoin price whipsaw event.
• Binance’s 0.1% ask depth, a key liquidity metric, dropped from 100 BTC to just 1.2 BTC during the event, which refers to outstanding buy orders within 0.1% of the mid-price.
• Liquidity contraction on Binance resulted in significant slippage for some traders, exceeding 20%.

As the world’s largest crypto exchange by volume, Binance is known for its liquidity depth during periods of market volatility. However, this reputation was challenged during Monday’s bitcoin price whipsaw.

According to data from Kaiko, Binance saw a major liquidity contraction versus rivals like Kraken and Coinbase when false rumors of a BlackRock BTC spot ETF fueled a brief 7.5% BTC price spike to $30,000.

Binance’s 0.1% ask depth, a key liquidity metric, crashed from 100 BTC down to just 1.2 BTC during the frenzy. This depth refers to outstanding buy orders within 0.1% of the mid-price.

Binance witnessed major liquidity contraction

Greater bid and ask depth enables executing larger trades at stable prices without slippage, the gap between expected and actual fill prices. As liquidity evaporated across major exchanges, some traders saw massive slippage exceeding 20%.

The average 0.1% ask depth fell below 95 BTC across the top exchanges. However, data showed Kraken and Coinbase maintained significantly higher depth and stability throughout the volatility.

With buyers massively outstripping sellers, liquidity suffered. The challenges of executing trades during the tumultuous spike highlight the importance of liquidity resilience during periods of extremes.

While Binance has established itself as a liquidity behemoth, this event signals the need for continued improvement to uphold its reputation amidst rapidly evolving market conditions. As volatility is inherent to crypto, enhancing liquidity depth across major moves remains an ongoing priority.