BTC Liquidity Halves from Peak before FTX Collapse amid Crypto Crackdown

Total liquidity for pioneer cryptocurrency Bitcoin (BTC) fell dramatically by 53.4% from a peak last seen before the collapse of Bahamas-based digital asset exchange FTX on October 25th last year. Compared to the start of 2023, liquidity for the native currency of the Bitcoin blockchain slumped 40.8%.

These are according to data from digital assets data provider, CCData, previously known as CryptoCompare. The firm, which is also a benchmark administrator authorized by the UK Financial Conduct Authority, said its figures are based on an analysis of 14 cryptocurrency exchanges.

Crypto Crackdown Hits BTC

According to CCData, the recent ramp up in regulatory scrutiny against cryptocurrency exchanges, particularly in the United States, has significantly impacted liquidity across various markets, including the cryptocurrency market. This impact was worsened by the exit of market maker from the jurisdiction, it added.

Earlier this month, the US Securities and Exchange Commission sued Binance, the world’s largest cryptocurrency exchange by trading volume, accusing the firm and its CEO Changpeng Zhao of operating an illegal trading platform, offering unregistered securities and misusing client funds, among other allegations. The securities watchdog followed this up by hitting Coinbase, the biggest crypto exchange in the Unted States, alleging that it was offering unregistered securities on an unauthorized trading platform.

In recent months, the regulator also filed a complaint against cryptocurrency exchange Bittrex for allegedly operating without registration and forced Kraken to shut down its staking-as-a-service programme. Additionally, it charged crypto exchange Gemini and crypto lender Genesis for allegedly offering unregistered securities.

Largest BTC Liquidations since FTX Collapse

According to CCData, the recent regulatory pressure and other ‘macroeconomic pressures’ are possibly responsible for shrinking liquidity in US crypto market. The firm noted that 1% market depth, or the ability of a crypto exchange to absorb a trade that is equal to 1% of its total trading volume, has declined significantly among US digital asset exchanges since November. The depth for bitcoins shrank from 1500 BTC to 400 BTC, it added.

“The impact differs among exchanges: OkCoin, Bittrex, Cexio, and BinanceUS have faced significant liquidity declines of 97.6%, 99.2%, 70.6%, and 78.4% YTD, respectively, with Bittrex and Binance.US encountering SEC actions,” the CCData explained.

Furthermore, SEC’s charges against Binance announced on June 5 “set off a major wave of BTC-long liquidations at a scale which hasn’t been seen since the collapse of FTX,” the digital asset data provider noted. Within an hour of the announcement, aggregate open interest, or the total number of outstanding BTC futures or options contracts that have not been settled, dropped by 4.51%.

“The announcement caught bullish traders by surprise, particularly affecting altcoins, such as Cardano and Solana, which were specifically mentioned in the lawsuit and are now considered securities by the SEC,” CCData elaborated. “These tokens experienced the most substantial declines.”

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Crypto exchange volume hits record high: CCData

Crypto exchanges clocked more than $10 trillion in volume across spot and derivatives markets, CCData said.

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CEX trading volumes fell to 4-year lows even before Binance, Coinbase suits

Monthly trading volumes on centralized exchanges continued to fall in May as regulators tighten their grip on the industry.

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Combined Crypto Spot and Derivative Exchange Volumes Sink to Yearly Low

The total volumes generated from spot and derivatives trading activities on centralized exchanges (CEXs) slumped by 12% to $2.36 trillion in July, hitting the lowest monthly trading volume recorded this year, so far. The figures are based on the latest exchange review report by CCData, a digital assets data provider.

Trading Suffers Lack of Volatility

Specifically, spot trading volume sank by 10.5% to $515 billion, the second-lowest volume generated since March 2019. Similarly, crypto exchanges generated the second-lowest derivatives volumes posted since December 2020. This is even as the value of trading activities went down by 12.7% to $1.85 trillion.

In June, aggregate volumes from both activities jumped by 14.2% for the first time in three months, hitting $2.71 trillion. The bullish trend came amidst a new wave of applications for spot Bitcoin exchange-traded funds by institutional investors, Finance Magnates reported.

However, volumes slowed down again in July, returning to record lows seen in the past few months. CCData attributed the decline to insufficient volatility in the crypto market.

“The decrease in trading volumes can be attributed to the lack of volatility in the price action of major crypto assets, with Bitcoin and Ethereum trading in a narrow range throughout July,” CCData explained.

Upbit Outtrades OKX and Coinbase

Meanwhile, in July, the market share of Binance continued to shrink, falling for the fifth consecutive month to 40.4%. The decline persists as the crypto exchange continues to battle regulatory opposition in several jurisdictions, particularly in the United States where federal prosecutors are now contemplating hitting the exchange with criminal charges.

However, with $208 billion in total spot trading volume, Binance remains the biggest crypto exchange in the world. In fact, the exchange Chinese users recently traded more than $90 billion in a single month, defying the ban on crypto trading in the Asian country.

On the other hand, South Korea-based crypto exchange, Upbit, pulled off an upset last month, beating top exchanges such as OKX and Coinbase to claim the position of second-largest exchange by trading volume after Binance. While Upbit’s spot trading volume surged by 42.3% to $29.8 billion in July, OKX and Coinbase saw their volumes plummet by 11.6% and 5.75% to $28.6 billion and $29 billion, respectively.

“Compared to last month, Upbit saw the largest increase in market share, with the exchange now accounting for 5.78% of the trading volumes on centralised exchanges,” CCData elaborated. “Huobi Global and Kucoin also increased their market share by trading volume, rising 1.92% and 0.47% to 3.84% and 2.21% respectively.”

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