{"id":4841,"date":"2022-11-24T12:31:23","date_gmt":"2022-11-24T04:31:23","guid":{"rendered":"https:\/\/blog.btse.com\/?p=4841"},"modified":"2023-03-07T03:26:53","modified_gmt":"2023-03-07T03:26:53","slug":"what-reduced-liquidity-in-a-post-ftx-world-could-mean-for-retail-investors","status":"publish","type":"post","link":"https:\/\/www.btse.com\/blog\/what-reduced-liquidity-in-a-post-ftx-world-could-mean-for-retail-investors\/","title":{"rendered":"What Reduced Liquidity in a Post-FTX World Could Mean for Retail Investors"},"content":{"rendered":"

2022 has been a challenging year for crypto markets. The collapse of Terra (LUNA), Celsius, Voyager, and many others hit the industry hard. And then FTX happened.<\/span><\/p>\n

The unfortunate events surrounding FTX have damaged investors\u2019 confidence and seeded doubt throughout the industry. But what does this all mean for the average retail investor? We take a deeper look below.<\/span><\/p>\n

 <\/p>\n

Liquidity Matters. Here\u2019s Why<\/b><\/h2>\n

With FTX and Alameda Research gone, global crypto markets have lost one of the biggest liquidity providers in the industry.\u00a0<\/span><\/p>\n

Liquidity affects how investors can get in and out of their positions. It is absolutely essential to any financial market, particularly in cryptocurrency markets, which are awash in micro-cap tokens.\u00a0<\/span><\/p>\n

Liquidity mitigates price manipulation and volatility. It plays a crucial factor in whether or not a large investor will enter a position or not. Without enough liquidity, it\u2019s very difficult for larger investors to enter the field.\u00a0<\/span><\/p>\n

 <\/p>\n

How Liquidity Has Changed Post-FTX<\/b><\/h2>\n

In the cryptosphere, liquidity is highly dominated by market makers such as Kairon Labs, GSR Markets, and Alameda Research, just to name a few. But now that the market\u2019s lost one of the biggest market makers \u2013 Alameda, we can expect a long-lasting liquidity gap in the market, making prices more volatile.<\/span><\/p>\n

The liquidity drop observed over recent weeks is far larger than that of the previous market drawdown, according to <\/span>a report<\/span><\/a> by Kaiko. Liquidity across 18 different exchanges for <\/span>Bitcoin (BTC)<\/span><\/a> and <\/span>Ethereum (ETH)<\/span><\/a> has fallen to their lowest points since June of this year.<\/span><\/p>\n

\"BTC
\nBTC liquidity within 2% of the mid price has fallen from 11.8k BTC to just 7k. Source: Kaiko\u00a0\u00a0<\/span><\/i><\/p>\n

\"ETH
\nETH markets were also affected by the collapse, with 2% market depth falling to late May levels. Source: Kaiko<\/span><\/i><\/p>\n

 <\/p>\n

Opportunities in Volatile Markets<\/b><\/h2>\n

And yet, with increased volatility often comes more arbitrage opportunities. The market is likely to see more dislocations in the prices of certain tokens, particularly in smaller-cap tokens. Traders might be able to pocket larger profits if they can spot such opportunities. Using <\/span>trading bots<\/span><\/a> to detect and act on such opportunities could be a good idea.\u00a0<\/span><\/p>\n

Liquidity aside, regulators around the world are racing to pass legislation to protect investors in the wake of FTX\u2019s downfall. But increased regulation is a good thing in the long run. It shores up investor confidence and paves the way for more institutions to enter the field, resulting in a more stable and liquid market. Ultimately, we continue to remain bullish on the crypto industry and the opportunities it has to offer.<\/span><\/p>\n

 <\/p>\n

Key Takeaways<\/b><\/h2>\n