In today’s crypto news, learn about how the liquidity situation in the bitcoin (BTC) and ether (ETH) markets has worsened and is now more concerning than it was three months ago. This has traders concerned about sudden price changes in the cryptocurrency industry. On the other hand, industry leaders are increasingly making the trans-Atlantic juxtaposition to argue for clearer regulations as U.S. agencies begin to enforce decades-old rules for trading and banking in the crypto world.
Traders Concerned About Ongoing Bitcoin and Ether Liquidity Thinning
Original Source: Crypto Traders Worried About Continued Liquidity Thinning in Bitcoin and Ether
Bitcoin (BTC) and ether (ETH) market liquidity is lower than three months ago. Crypto traders worry about sudden price fluctuations.
Market liquidity is its capacity to absorb big buy and sell orders at steady prices. 2% of market depth—buy and sell offers within 2% of the mid-price or the average of the bid and ask/offer prices—is a popular liquidity statistic.
Liquidity increases with depth.
Bitcoin’s 2% market depth for USDT pairings collected from 15 centralized exchanges has dropped to 6,800 BTC, exceeding the post-FTX low. That’s much behind October’s 15,000 BTC highs. Since October, Binance has cut ether’s market depth to 57,000 ETH.
“Thin liquidity means more extreme changes, particularly in alternative cryptocurrencies,” Astronaut Capital chief investment officer Matthew Dibb said.
“Funds seeking to trade big are compelled to TWAP over longer periods (days or weeks) hence why it seems like some charts have lately been ‘walked up’ such as STX,” Dibb said.
Time-weighted average price (TWAP) is a popular algorithmic method that aims to match the asset’s TWAP. To minimize market effect and slippage, it entails dividing a big order into smaller quantities and executing them at regular intervals.
Slippage is the discrepancy between the predicted trade price and the actual buy/sell price. Low liquidity and significant volatility cause slippage.
“Realistically though, declining market depth has also meant that most major institutions have not been engaging at the same level as before owing to the degree of slippage related,” Dibb said, adding that any significant institution that offloads coins now would affect the market more.
Bitcoin (BTC) and ether (ETH) market liquidity is lower than three months ago. Crypto traders worry about sudden price fluctuations.
Market liquidity is its capacity to absorb big buy and sell orders at steady prices. 2% of market depth—buy and sell offers within 2% of the mid-price or the average of the bid and ask/offer prices—is a popular liquidity statistic.
Liquidity increases with depth.
Bitcoin’s 2% market depth for USDT pairings collected from 15 centralized exchanges has dropped to 6,800 BTC, exceeding the post-FTX low. That’s much behind October’s 15,000 BTC highs. Since October, Binance has cut ether’s market depth to 57,000 ETH.
“Thin liquidity means more extreme changes, particularly in alternative cryptocurrencies,” Astronaut Capital chief investment officer Matthew Dibb said.
“Funds seeking to trade big are compelled to TWAP over longer periods (days or weeks) hence why it seems like some charts have lately been ‘walked up’ such as STX,” Dibb said.
Time-weighted average price (TWAP) is a popular algorithmic method that aims to match the asset’s TWAP. To minimize market effect and slippage, it entails dividing a big order into smaller quantities and executing them at regular intervals.
Slippage is the discrepancy between the predicted trade price and the actual buy/sell price. Low liquidity and significant volatility cause slippage.
“Realistically though, declining market depth has also meant that most major institutions have not been engaging at the same level as before owing to the degree of slippage related,” Dibb said, adding that any significant institution that offloads coins now would affect the market more.
CoinDesk-Unknown
2% native cryptocurrency market depth is below November’s low. (Kaiko) (Kaiko)
Market depth dropped again on falling bitcoin volatility forecasts. Griffin Ardern, a trader at crypto asset management firm Blofin, says this condition typically causes volatility explosions.
According to CryptoCompare, the Bitcoin Volatility Index (BVIN), which gauges implied volatility over the next 30 days, has dropped to 56.39, the lowest since early 2021.
According to Amberdata, Bitcoin’s seven-day variance risk premium—the difference between implied and actual volatility—has become negative. Short-term volatility forecasts are underpriced.
“A volatile situation is being created,” Ardern warned. Because the depth is minimal, a tiny buy/sell transaction can impact the price, and market makers’ hedging behavior amplifies market volatility.
Market makers constantly trade against investors and maintain a market-neutral portfolio by buying and selling the underlying asset when prices change. Because to minimal market depth, their hedging behavior can significantly affect bitcoin’s spot market price.
As Alameda Research and FTX failed, crypto market liquidity began to dry up in mid-November. Alameda was a major market maker for small and large-cap coins, giving billions in liquidity. The pandemic destroyed Arbitrage and high-frequency trading desks and harmed Genesis and other market makers.
“FTX’s failure undoubtedly influenced all major market-makers to some extent. In order to de-risk, numerous liquidity providers may have reduced or stopped market-making “TDX Strategies founder and CEO Dick Lo remarked.
“There’s also been a transfer of holdings to decentralized exchanges to avoid counterparty risk,” Lo noted.
As Europe Beckons, Cryptocurrency Businesses Brace for a “Carpet-bombing Moment” in the United States
Original Source: Crypto firms brace for ‘carpet-bombing moment’ in U.S. as Europe beckons
Europe wants crypto commerce, giving crypto advocates a new weapon against U.S. authorities.
As U.S. regulators enforce decades-old crypto trading and banking restrictions, industry executives are increasingly arguing for simpler regulations. Congress isn’t ready to create a federal digital currency standard, so President Joe Biden’s regulators are.
Unlike the EU, which is seeking to implement digital asset company-specific legislation. European politicians are promoting the EU as a friendly destination for crypto firms.
“We will have the greatest framework in the world under which enterprises can develop,” said conservative German politician Stefan Berger, who shepherded the EU crypto rules that will take effect in the second half of 2024. “We will have everything for a functional market.”
With legislators divided over whether to support crypto and regulators intervening, no U.S. policymaker can make it. FTX’s bankruptcy revealed widespread industry mismanagement and ousted Washington crypto player Sam Bankman-Fried. Lobbyists and friendly legislators in the U.S. are telling Congress that without clearer standards, the U.S. would lag behind.
America’s reputation for innovation and finance is at risk. The EU’s progress is inspiring business partners in Congress to push their goal despite the crypto world’s political decline.
The EU leads. Switzerland leads. “Australia’s ahead of us,” said Wyoming Republican Sen. Cynthia Lummis, a Bitcoin enthusiast who has written a comprehensive crypto regulatory bill. England leads. It’s not only second- and third-world countries.”
The U.S. regulates the business with a mix of state-level laws and licensing and federal financial safeguards for old-school banks, conventional stock trading, and commodities exchanges, unlike the EU.
Due to favourable state policies and limited federal intrusion, crypto has thrived in the U.S.
Federal officials are cracking down on the sector’s egregious disregard for financial norms on investments and loans.
“We’re sensing a crypto carpet-bombing moment, where they appear to be attempting to hurl anything they can within their authority—or perhaps exceeding their authority—and we believe that’s shortsighted,” said Kristin Smith, CEO of the Washington-based Blockchain Association. “It hurts U.S. competitiveness.”
As Facebook, now Meta, launched its Libra digital currency in 2019, the EU reopened to crypto.
European regulators worried about big tech minting private money halted the initiative.
Legislators drafted industry-specific restrictions before comparable crypto goods could take hold on the continent after that occurrence.
Stablecoins, like Libra, are digital assets tethered to a national currency or other financial commodity. EU policymakers’ Markets in Crypto-Assets regulation, MiCA, has rigorous requirements for them. It establishes crypto market investor protections, capital constraints, and company governance. Aides to U.S. politicians met with EU officials in Brussels recently to discuss the new bill.
“Europe is obviously surpassing the U.S. by building holistic regulatory frameworks for the cryptoasset industry,” said Susan Friedman, head of policy at Ripple, a digital currency startup fighting an SEC enforcement action. “We see Europe being a natural centre for responsible participants.”
Several European authorities worry that the new regulation won’t prevent another FTX-like fiasco. They want more protections.
Ernest Urtasun, Spain’s left-leaning Green MP who helped develop the regulation, said MiCA is a positive start in the right direction but not flawless or complete. “Today’s regulatory and supervisory problems require more work.”
The crypto business may view the EU framework as more liberal than “the basic effort now in the United States to just enforce the standards that exist,” according to Americans for Financial Reform senior policy researcher Mark Hays.
“The conflict between the European Commission, the Council, and the parliament makes EU regulations exceptionally convoluted, and industrial lobbyists flourish in that environment,” Hays added.
Congress’ crypto doubters are unmoved by Europe’s market share gains. Top crypto firms claim the EU remains unfriendly.
“Crypto, it’s not like it produces that many jobs,” Senate Banking Committee Sherrod Brown (D-Ohio), a digital currency opponent, said in an interview. “Companies that game the system always threaten to offshore.”
Circle stablecoin issuer Dante Disparte said he would accept U.S. regulatory uncertainty “over the near five years of hurry up and wait the Europeans have embarked on” while developing and implementing their new law.
Experienced Disparte talks. He led Facebook’s Libra project, which the EU blocked.
“You might not like that America is locked in a fintech constitutional crisis that protects and maintains the states as the laboratory of fintech innovation,” he remarked. “But that’s powerful and not a bug.”
Summary of today’s bitcoin and cryptocurrency news
To put it simply, as Alameda Research and FTX went bankrupt in mid-November, the crypto market’s liquidity began to dry up. The following epidemic pulled down multiple trading desks, including Arbitrage and high-frequency trading businesses, as well as notable market makers such as Genesis, which is owned by CoinDesk’s parent company, Digital Currency Group.
Lastly, the EU’s Markets in Crypto-Assets Act, or MiCA, sets strict rules for stablecoins. Stablecoins, like the now-defunct Libra, are a type of digital asset that is tied to a national currency or other well-known financial asset. It also sets up investor protections, capital requirements, and rules for corporate governance for the cryptocurrency industry as a whole. Aides to US congressmen have been in Brussels in recent days to discuss the new bill with EU authorities.
