Kaiko Report: Bitcoin’s Rapid Ascension Erases Crypto’s ‘Alameda Gap’

Crypto News- After the shutdown of FTX and Alameda Research in November 2022, market liquidity took a hit, but recent findings from crypto research firm Kaiko suggest a remarkable recovery. Kaiko’s March 18 bulletin reveals that the liquidity gap, famously termed the ‘Alameda Gap,’ has rebounded to pre-collapse levels, buoyed in part by a recent surge in Bitcoin (BTC) prices.

Originally coined by Kaiko in November 2022, the ‘Alameda Gap’ stemmed from the substantial losses suffered by market makers, causing a significant drop in liquidity across global exchanges. This decline affected trading volumes and market stability, underscoring the influence of major players in the crypto market.

Kaiko Report: Bitcoin’s Rapid Ascension Erases Crypto’s ‘Alameda Gap’

Kaiko’s latest analysis indicates that the gap persisted for over a year as market makers awaited a resurgence in sentiment and trading activity. However, with Bitcoin’s market depth increasing by 40% year-to-date and briefly surpassing its pre-FTX average, the recovery seems tangible.

The surge in BTC prices, which have soared by 60% since the year’s start and recently hit a new all-time high of $73,750 on March 14, has played a pivotal role in this recovery. Additionally, Kaiko reports a decline in BTC/USD spreads on major U.S. exchanges like Coinbase, Kraken, and Bitstamp, signaling meaningful improvements in liquidity conditions.

Kaiko attributes this positive shift partly to structural reasons, noting a reduction in trading costs in the U.S. market. The decrease in spreads, representing the gap between asking and bidding prices of assets, suggests a more favorable trading environment.

However, concerns about a potential ‘sell-side liquidity crisis’ loom as institutional exchange-traded fund (ETF) inflows into Bitcoin have slowed in recent days. Despite hitting a record high of $1 billion in daily inflows last week, current figures have dipped below $200 million, raising questions about future liquidity dynamics.