The liquidity and trading volumes on the world’s largest crypto exchange Binance declined significantly in the first quarter of this year after the trading platform ended its zero-fee promotion. In addition, the recent banking failures were also blamed for the decline.
Dessislava Aubert, a Kaiko analyst, says the BTC liquidity on Binance dropped from $45 million in February to around $16 million in late April. Aubert claims the major driver of the drop was Binance’s decision to bring to a close its zero-free program for 13 Bitcoin pairs, pushing market markers out of the trading platform.
Specifically, BTC-USDT, which is the most traded pair on Binance, saw its monthly trading volumes plunge to $2.1 billion in April from $16 billion recorded the previous month.
Aubert also linked declining liquidity with the collapse of crypto-friendly banks like Silicon Valley and Silvergate that provided on-ramp services to the industry. Following the failures of these banks, the 1% market depth on Binance dropped massively. A 1% market depth measures liquidity using asks and bids within 1% of the market price.
How Low Bitcoin Liquidity Affects Crypto Trading on Binance
The declining liquidity and trading volumes on Binance have caused high volatility. Kaiko reports that volatility began surging significantly in February when liquidity on Binance started dropping.
Low liquidity also means order books on Binance are getting thinner. This condition causes wild price swings in case users place large orders.
Aubert claims that high volatility could be witnessed for some time following the decision of big market markers like Jump Crypto and Jane Street to reduce their exposure to crypto.
Notably, BTC’s price plummeted below $27,000 on Friday despite favorable macro factors such as increased expectations that US Federal Reserve will stop hiking interest rates in the coming months following a positive Consumer Price Index (CPI) report. According to the US Bureau of Labor Statistics, CPI declined to 4.9% in April from 5.1% in March.
Kaiko argues that Bitcoin could not stage a rally because of poor liquidity.
Binance to Exit the Canadian Market
Kaiko’s report regarding BTC liquidity on Binance comes at a time when the crypto exchange is planning to cease its operation in Canada after the country’s authorities issued new stricter crypto regulations. In a tweet, Binance said it no longer finds the Canadian market tenable due to the new guidance, which requires trading platforms to block their customers from trading assets the country’s regulators consider securities, including stablecoins.
Binance has instructed users from that region to close any open positions by the end of September. Furthermore, the exchange stated that it would continue engaging with Canadian regulators to help them establish a comprehensive crypto regulatory framework.
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