• Capital has been flowing out of the crypto space, despite rising prices.
• Liquidity is thin due to the collapse of FTX and Alameda insolvency last year.
• Regulatory climate in the US and high yields in trad-fi are contributing to the capital outflow from crypto.
Capital Flow Out Of Crypto Despite Rising Prices
Crypto prices have risen since the start of the year, but capital continues to flow out of the space. Last week brought news that two prominent market makers, Jane Street and Jump Crypto, were scaling back operations in the US amid a regulatory crackdown on the sector. With liquidity so low, prices have been able to move up more rapidly; however, this also amplifies moves downward as well as upward.
Consequences Of The Alameda Insolvency
The Alameda insolvency last year has had serious consequences for crypto markets with liquidity remaining low across exchanges. The total marketcap of stablecoins has dipped $16 billion since November when FTX collapsed and nearly $24 billion of stablecoins have left exchanges in that time.
Regulatory Climate In The US
The regulatory climate in the US is making it increasingly difficult for crypto firms based there to operate. The SEC has accused them of “mass non-compliance” rather than a lack of clarity around regulations and money is talking accordingly. This situation has been exacerbated by high yields available in traditional finance (trad-fi) drawing capital away from crypto assets, further reducing liquidity levels across markets .
Impact On Bitcoin Markets
The lack of liquidity is having a significant impact on Bitcoin markets which need to overcome this hurdle if they are establish themselves as mainstream assets. As inflation comes down and interest rates soften, there is less resistance for Bitcoin’s expansion which could be seen as a positive short-term benefit; however, without higher levels of liquidity long-term success may be hard to come by .
In conclusion, while rising prices may have provided some temporary relief from thin liquidity issues in crypto markets; regulatory crackdowns combined with capital moving away from cryptocurrencies due to increasing yields available elsewhere mean that these problems will not go away easily and will need to be addressed if Bitcoin hopes to become an established asset class over the long run .