Report: Understanding the Crypto Liquidity Crisis Caused by SEC Enforcement Actions

Kraken has emerged as a resilient market player, while its peer exchanges have borne the brunt of the SEC’s enforcement from a liquidity standpoint.

Subsequent SEC enforcement actions, targeting first Ripple and XRP and then Binance and Coinbase, added to the pain of other cryptocurrency exchanges from a liquidity standpoint. There has been a major shift in the CEX landscape, already facing challenges following the FTX debacle.

A slow recovery in liquidity appears to plague the second quarter, according to a new report.

Kraken: Alien

The second quarter report of blockchain data provider Kaiko shows that the spot transaction volume in the second quarter of 2023 fell sharply, falling to the lowest level since 2020. Binance plummeted about 70%. Trading volumes on Coinbase, Kraken, OKX, and Huobi also fell by a whopping 50% over the same period.

However, Kraken’s liquidity has been “very resilient” so far. Since the start of the year, it has become one of the very few exchanges to turn things around by adding market depth. Kaiko stated that the liquidity crisis in the US is now a major trend, affecting the prices of Binance.US and Coinbase.

In the short term, cryptocurrency exchanges in the country may lose market share to their overseas counterparts.

The report suggests that Kraken stands out in this case as it appears to be “pretty strong” considering liquidity. On the other hand, overseas platforms such as OKX have expanded their market share and liquidity at the expense of Binance.

re-optimistic

Spot bitcoin ETFs have long been viewed as the holy grail of the digital asset industry and a way to appeal to a wider range of consumers. However, the SEC has different plans and has rejected all previous applications so far.

Despite the ongoing market volatility, institutional clients appear optimistic, according to the latest survey conducted by Binance Research and the Binance VIP and Institutional team.

More than 50% of the respondents had assets under management in crypto assets of less than $25 million, and 22.6% of respondents had assets under management of more than $100 million. 63.5% of respondents expressed confidence in the prospects for cryptocurrencies in the next year, while 88% expressed optimism for the next ten years.