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Impact of ETFs on Bitcoin and Ether Market Liquidity
Explore how Exchange-Traded Funds (ETFs) influence the liquidity of Bitcoin and Ether markets. Understand the dynamics of crypto trading, investment strategies, and the potential benefits and challenges posed by ETFs in the evolving digital asset landscape.
In December 2023, CoinDesk reported that the introduction of exchange-traded funds (ETFs) would enhance market liquidity, facilitating the execution of large buy and sell orders at more stable prices. This prediction came to fruition with the launch of spot ETFs on January 11, which positively influenced the liquidity of the bitcoin (BTC) market. However, the scenario for ether (ETH) unfolded differently.
After the launch of nine ether ETFs on July 23, data from London-based CCData revealed a concerning trend: the liquidity of ether’s order book has notably declined. Specifically, the average 5% market depth for ETH pairs on U.S.-based centralized exchanges has decreased by 20%, bringing it down to approximately $14 million. Meanwhile, on offshore centralized platforms, this figure has dropped by 19%, landing around $10 million. Consequently, it has become easier to influence the spot price of ether by 5% in either direction, indicating a reduction in liquidity and a heightened sensitivity to substantial orders.
Jacob Joseph, a research analyst at CCData, highlighted the situation in an interview with CoinDesk: “While the market liquidity for ETH pairs on centralized exchanges is still higher than what was observed at the beginning of the year, we have seen a nearly 45% decline since its peak in June. This reduction can likely be attributed to unfavorable market conditions and seasonal trends in the summer months, which typically bring about lower trading activity.”
The 5% market depth metric refers to the volume of buy and sell orders positioned within 5% of the mid-market price for a particular asset. A greater depth indicates stronger liquidity and reduced slippage costs, which are crucial for traders. CCData’s analysis encompassed the 5% market depth for all ETH pairs across 30 centralized exchanges.
Since the debut of ether ETFs, there has been a cumulative outflow exceeding $500 million, as reported by Farside Investors. Furthermore, ether’s price has plummeted by over 25%, currently standing at $2,380, based on data from CoinDesk.