• Bitcoin liquidity has slumped since the collapse of FTX in November and has yet to recover.
• Market makers Jane Street and Jump Crypto have pulled back from trading in the U.S., which could put further strain on liquidity.
• Crypto-native market makers are not as affected, but US counterparties may begin to shift offshore or to Europe and Asia for liquidity.
Bitcoin Liquidity on the Brink
The collapse of FTX in November has caused a slump in bitcoin liquidity that has yet to recover, putting strain on the fragile flow of capital across the industry. This is compounded by recent reports that two influential cryptocurrency market makers, Jane Street and Jump Crypto, have pulled back from trading in the U.S..
Effects on Liquidity
Kaiko analyst Riyad Carey commented that “what’s concerning is that liquidity has still not recovered from Alameda’s collapse, and a slowdown with two of the biggest surviving market makers could weigh on liquidity even further”. Market depth, a metric used to measure liquidity on exchanges by assessing how much capital is required to move a market, dropped by more than 50% after FTX’s collapse and remains low despite an increase in crypto prices.
Crypto-Native Market Makers Unaffected
Paris-based crypto-native market maker Woorton states that there will be no short-term impact for them due to this news as it only affects US counterparties. However, brokers, payment providers and other actors looking for OTC liquidity may have to consider shifting offshore or to Europe/Asia instead if they want access to sufficient liquidity.
The regulatory clampdown enacted following FTX’s demise is causing tension between those enforcing regulation (such as those at the SEC) and those facilitating innovation within crypto (such as Coinbase CEO Brian Armstrong). Those seeking clarity will be waiting with bated breath until further details emerge about what these regulations entail.
The decrease of key players such as Jane Street and Jump Crypto within U.S.-based markets could cause serious disruption if left unchecked by regulators or alternative solutions such as relocating overseas for greater access to liquidty sources. The future outlook for bitcoin markets thus remains uncertain until further information emerges regarding forthcoming regulations and their implications for traders’ activity levels.