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%.

Crypto Crackdown Hits BTC

The figures are based on a new report by digital assets data provider, CCData, previously known as CryptoCompare. The firm, which is also a UK-registered benchmark, said it analyzed 14 cryptocurrency exchanges for the report.

According to CCData, the recent ramp-up in regulatory scrutiny against cryptocurrency exchanges, particularly in the United States, has had a significant impact on liquidity across various markets, including the cryptocurrency market. This impact was worsened by the exit of market makers 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 United States, alleging that it was offering unregistered securities on an unauthorized trading platform.

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

Largest BTC Liquidations since FTX Collapse

According to CCData, regulatory scrutiny in recent months and other ‘macroeconomic pressures’ are possibly responsible for shrinking liquidity in the 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 bitcoin 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, the 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.”