Bid-Ask Spreads Tighten on U.S. Exchanges Post-Spot ETF Approvals
Bid-ask spreads on major U.S. exchanges like Coinbase and Kraken have tightened post-spot ETF approvals, signaling enhanced market liquidity and depth, analysts at Kaiko say.
Improved Market Liquidity for Bitcoin
Bid-ask spreads for Bitcoin (BTC), which represent the difference between the highest bid and lowest ask prices, have decreased significantly post-approval, indicating an improvement in market liquidity and deeper trading activity.
Volatility in Spreads
In a recent research report, analysts at Kaiko revealed that U.S.-based crypto exchange Kraken experienced the highest volatility in spreads during January, reaching a peak of 10 basis points on Jan. 20. Similarly, spreads on Bitstamp and Coinbase also peaked between Jan. 8 and Jan 13 at 6.7 and 1.7 basis points respectively, before plummeting to below 1 basis point in recent weeks.
Declining Average Bid-Ask Spread
Kaiko pointed out that the trend extends beyond U.S. markets and Bitcoin, as the average bid-ask spread for the most liquid BTC and Ethereum (ETH) trading pairs has also declined across various crypto exchanges.
Competition Among Exchanges
Analysts say the approval of spot exchange-traded funds (ETFs) will eventually fuel a new wave of competition among exchanges, as Coinbase has already announced fee waivers for large traders, which is expected to further drive down spreads.
SEC Approval and Gensler’s Stance
The U.S. Securities and Exchange Commission (SEC) has greenlit all spot Bitcoin ETF applications. Nonetheless, Gary Gensler, who has maintained a critical stance on cryptocurrencies since assuming leadership of the U.S. financial regulator, reiterated in a statement that the SEC “did not approve or endorse Bitcoin,” despite approving spot ETFs.
Hot Take: Enhanced Market Liquidity and Increased Competition Post-Spot ETF Approvals
Bid-ask spreads on major U.S. exchanges have tightened after the approval of spot ETFs, indicating improved market liquidity and deeper trading activity. This trend is not limited to Bitcoin but extends to other liquid BTC and ETH trading pairs across various crypto exchanges. The approval of spot ETFs is expected to ignite competition among exchanges, with Coinbase already offering fee waivers for large traders. As a result, bid-ask spreads are predicted to further decrease. However, it’s worth noting that although the SEC approved spot ETFs, Gary Gensler emphasized that this does not constitute an endorsement of Bitcoin.
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