Market liquidity, which experienced a significant decrease following the shutdown of FTX and Alameda Research in November 2022, has now rebounded to pre-collapse levels, according to crypto research firm Kaiko.
In a research bulletin released on March 18, Kaiko data reveals that the liquidity gap, known as the “Alameda Gap,” has recovered to levels seen before the FTX incident, partially due to a recent Bitcoin rally.
The term “Alameda Gap” was coined by Kaiko in November 2022, as the firm played a significant role as a market maker. It refers to a decrease in liquidity on global exchanges caused by substantial losses suffered by market makers.
This collapse resulted in a significant decline in available trading liquidity, impacting volumes and market stability, and highlighting the influence of major players in the crypto market in 2022.
Kaiko’s recent note acknowledges that the gap persisted for over a year “as market makers waited for sentiment and trading activity to recover.”
However, Kaiko states that as of last week, Bitcoin’s market depth, which measures the liquidity of an asset, has increased by 40% year-to-date, briefly surpassing its pre-FTX average of $470 million.
“As of last week, market depth has almost fully recovered and is back to its pre-FTX average,” Kaiko notes.
The firm attributes this recovery to the surge in BTC prices, which have risen by 60% since the beginning of the year and reached a new all-time high of $73,750 on March 14.
In addition, Kaiko reports that the spreads between BTC/USD prices on three major U.S. exchanges — Coinbase, Kraken, and Bitstamp — have also decreased, indicating an improvement in liquidity conditions.
Kaiko suggests that this change in spreads could be partly due to structural reasons. It concludes that the cost of trading in the United States has become much cheaper.
Earlier this month, it was reported that Bitcoin could face a “sell-side liquidity crisis” later this year if institutional ETF inflows continue. However, daily ETF inflows have significantly slowed down in recent days, dropping below $200 million from highs of over $500 million and a record daily inflow of $1 billion when BTC reached an all-time high.
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