bitcoin Price Surging and Liquidity Concerns

The bitcoin (BTC) price has been surging at spot rates, recently surpassing the July 2023 resistance level and reaching new 2023 highs after experiencing a downturn in 2022. A significant part of the sharp sell-off, particularly in November 2022, was attributed to the collapse of FTX and Alameda Research, the trading division of the now-defunct crypto exchange.

BTC Rallying But Liquidity Is At November 2022 Level

According to reports by Kaiko, a blockchain analytics platform, bitcoin‘s liquidity is currently at the level it was post-FTX collapse, and the Alameda gap persists despite the rapid surge in crypto prices in late October and early November 2023. This indicates that the surge in bitcoin prices has not yet translated into improved market liquidity.

Notably, bitcoin recently rose above the July 2023 high, reaching around $32,000, and the increase in trading volume suggests solid support for the uptrend.

Effects of FTX Collapse on bitcoin Liquidity

Kaiko indicates that despite bitcoin‘s 20% surge in October, the “Alameda gap” induced by the collapse of FTX remains, leading to an overall lack of market liquidity. The observation shows that the collapse of FTX and its associated trading wing, Alameda Research, had a lasting impact on bitcoin liquidity even as prices rebounded and doubled from the 2022 lows.

Will Liquidity Increase After Spot bitcoin ETF Approval?

Market liquidity remains a concern, hindering smooth bitcoin trading following the collapse of FTX and Alameda Research. However, the Alameda gap appears to be narrowing at spot rates, albeit at a level significantly lower than pre-collapse.

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There is optimism that the approval of a spot bitcoin exchange-traded fund (ETF) by the United States Securities and Exchange Commission (SEC) could improve liquidity in the coming months. A spot bitcoin ETF would allow investors to gain direct exposure to bitcoin without the need to purchase or sell the digital asset directly. Should the SEC approve this product, it could drive increased demand for bitcoin, potentially boosting market liquidity.

The approval of a spot bitcoin ETF might also attract more institutional interest and capital into the industry due to clearer regulation and broader access to bitcoin as an investment vehicle.

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