Understanding Crypto Liquidity Crisis Triggered by SEC’s Enforcement Actions: Report

The SEC’s subsequent enforcement actions, first against Ripple and XRP, followed by Binance and Coinbase, have contributed to the sufferings of other crypto exchanges from a liquidity standpoint. There has been a major shift in the CEX landscape that has already faced challenges following the FTX implosion.

A new report suggested that a slow recovery in liquidity appears to have haunted the second quarter.

Kraken: An Outlier

The blockchain data provider Kaiko’s second quarterly report revealed that spot trading volumes fell sharply during Q2 2023, plunging to the lowest level since 2020. Binance plummeted by approximately 70%. Coinbase, Kraken, OKX, and Huobi also witnessed their respective trading volumes slash by 50% during the same period.

However, Kraken’s liquidity has been “remarkably resilient” so far. It emerged as one of the very few exchanges that flipped the narrative by increasing market depth since the beginning of the year. Kaiko said the liquidity crisis in the United States is now a significant trend that has affected prices on both Binance.US and Coinbase.

In the short term, the crypto exchanges in the country could potentially lose market share to their overseas counterpart.

The report suggests that Kraken stands out in this case because it looks “quite strong,” taking liquidity into consideration. On the other hand, overseas platforms such as OKX have managed to amplify market share and liquidity at the expense of Binance.

Renewed Optimism

A spot Bitcoin ETF has long been viewed as the holy grail for the digital asset industry, as a way to achieve a broader swath of consumers. The SEC, however, has different plans and has so far rejected all prior filings.

Despite the continued turbulence in the market, institutional clients appeared optimistic, according to the latest survey conducted by Binance Research and Binance VIP & Institutional team.

Over 50% of respondents had a crypto AUM of less than $25 million, and 22.6% had AUM larger than $100 million. 63.5% of respondents expressed confidence in the outlook of crypto for the next year, while 88% said they are positive for the next decade.