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Challenges Await BTC ETF Providers as Bitcoin Liquidity Remains Low Across Exchanges

Challenges Await BTC ETF Providers as Bitcoin Liquidity Remains Low Across Exchanges

The CEO of Medici Raises Concerns About Bitcoin Liquidity on Spot Exchanges

Edward Boyle, the CEO of Medici, has expressed worries about the low liquidity of Bitcoin (BTC) on major spot cryptocurrency exchanges like Binance and Coinbase. He believes that this could present challenges for Bitcoin exchange-traded fund (ETF) providers, especially with the anticipated launch of ETFs in the United States. These launches are subject to approval from the Securities and Exchange Commission (SEC).

Bitcoin Liquidity Affected by FTX Collapse

Boyle refers to data from Kaiko in a recent post, which shows that there is only around $200 million in Bitcoin trading volume within 1% of the spot price. This means that if a large buyer or seller wants to make a significant trade, it could have an impact on Bitcoin prices. However, for those looking to buy or sell a few million dollars’ worth of Bitcoin, the current liquidity would be able to absorb it.

Bitcoin liquidity at 1% market depth | Source: Edward Boyle citing Kaiko on X

Boyle suggests that the collapse of FTX, which was once a prominent exchange valued at over $20 billion, has worsened the liquidity problem. The bankruptcy of FTX resulted in the exit of one of the largest market makers in crypto, leading to a decrease in liquidity. Additionally, the decline in crypto assets like Solana (SOL) following FTX’s bankruptcy news caused fear and uncertainty among traders, further affecting market liquidity.

Challenges for BTC ETF Providers

Considering these factors, Boyle believes that spot Bitcoin ETF providers like BlackRock, Fidelity, and VanEck may struggle to buy Bitcoin without significantly impacting its price on spot exchanges such as Coinbase. The need for providers to buy Bitcoin stealthily on crypto exchanges could slow down the adoption of spot ETFs. Furthermore, the longer buying process could result in higher fees for spot Bitcoin ETF providers.

However, the approval of these complex derivatives could gradually improve liquidity in the spot Bitcoin market by attracting new institutional investors and increasing trading volume. This would reduce the impact of individual trades and potentially restore liquidity levels to those before the FTX collapse or even better.

Hot Take: Bitcoin’s Price Trend and Potential Impact of SEC Authorization

Currently, Bitcoin is holding firm above $43,000 and is in an uptrend. Optimistic analysts expect the coin to surpass $45,000 and even $69,000 in upcoming sessions if the SEC authorizes the first spot Bitcoin ETF in the U.S.

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Challenges Await BTC ETF Providers as Bitcoin Liquidity Remains Low Across Exchanges