In its post new year issue, Bitfinex Alpha issued a new report with On-chain data in which this time it addresses themes such as “the current liquidity crisis” of digital assets and the recovery that both DeFi and DEX have been having. In this new analysis, Bitfinex Alpha reveals the reduction of activity in the crypto markets that has been registered recently and also the increase in the volume of DEX which is a consequence of said reduction.
Differences have been marked in the price of Bitcoin in the time range between December last year and January 2023, however, Bitfinex Alpha mentioned in its document that “The volatility inherent in smaller time frames has increased. Sharp price swings over shorter time frames are often due to a lack of liquidity.”
The FTX bankruptcy that occurred last year left quite accentuated collateral damage within the cryptographic environment. One of them was reflected in the Bitcoin market, since a liquidity vacuum was created, which brought with it the consequence of “a severely reduced depth of market”.
At the end of October 2022 the aggregate depth of the Bitcoin market reached a maximum of 14,000 BTC but just a month later it reached a minimum of 6,500 BTC. Figure that increased for the beginning of the second week of January of the current year reached 8,000 BTC, however, to date it has still managed to exceed 10,000 BTC.
“A large order of the same value or size in USD placed today will have more than twice the price impact of two months ago. For large traders this makes it a very difficult environment to trade in. This is very discouraging for the whales and larger trading firms that actively trade cryptocurrency simply as an alternative public market,” Bitfinex Alpha concluded in its report.
Even in this edition it was revealed that Alameda Research provided large amounts of liquidity dollars to both small and large cap digital assets, leading to the fact that FTX client money was actually used with in order to promote the company from the commercial approach.
The 2% depth of market for BTC is evidence of the reduction in liquidity seen as the FTX/Alameda collapse occurred in each of the markets.
Likewise, As reported since the end of 2022, the retail market continues to migrate from centralized exchanges towards self-custody as well as decentralized exchanges. which is reflected in the reduction of activity of market makers; which, it should be noted, was another collateral damage left by the collapse of FTX.
“Three companies, Wintermute, Amber Group and Genesis, have disclosed that they have money locked up in FTX, probably in the hundreds of millions of dollars. Therefore, the liquidity decline extends beyond the mere absence of Alameda Research from the order books,” Bitfinex Alpha explained.
The FTX situation also dragged and reflected in the crypto environment a growing distrust towards the different exchange companies, a case of this was the centralized exchange house Binance, which led to a massive migration to “decentralized alternatives” as are DEX and DeFi.
In the period of one month (from November 25 to December 25) CEX “had the lowest aggregate daily trading volume over a 30-day period (discounting the holiday period to avoid skewing the data)” This was reflected in the data shown by Kaiko Research, despite the fact that, as is known; its daily volume is characterized by fluctuation.
According to the data provided by DefiLlama, Dex was affected during the Christmas season, however, during the first week of 2023 its net volume allocated to previous exchanges rose, thus reaching an increase of 6.47%.
By January 8, the DEX vs. CEX domain was at 11.16%, which means that it has come to exceed more than double what it was in January 2022.
In the case of the decentralized exchange GMX, which is a “spot and perpetual exchange that supports low exchange fees and zero price impact trading,” its charts showed that it has managed to continue to sustain an increase in new users “while maintaining a strong retention rate of existing traders on the platform since November . The number of users trading on margin on the exchange has increased by more than 500% since November 9.” Bitfinex Alpha detailed.
According to the analysis, there has also been an increase in open interest; by November 9, 2022, an average of approximately USD 150 million was averaged, a figure that changed drastically in a matter of days since, on the 27th of the same month, it registered USD 194.8 million. “All this data only represents Arbitrum volume and open interest; Avalanche also increases these metrics by 15-20%” added Bitfinex Alpha.
The Delphi Digital graphs showed that, on the part of Arbitrum, the total value locked (TVL) has not shown any type of change since November of the previous year, despite the fact that the other blockchains, on the contrary, have registered significant amounts of Departures. Especially Ethereum and Polygon that have had a decrease in the total value locked of 28% and 19% respectively.
“TVL is a measure of the total value stored in the blockchain. For many of these protocols, most of the value in the chain is due to the chain’s underlying token. Therefore, TVL is also highly correlated with the fluctuation of the token’s market price,” Bitfinex Alpha explained to close this issue.
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