Market makers say the era of spot Bitcoin ETFs in the US is an opportunity to repair the decline in the crypto market caused by the collapse of the FTX exchange and sister hedge fund Alameda Research.
The implosion of two once cornerstones of digital assets in late 2022 following a collapse in token prices and large-scale fraud incidents, along with a decline in their ability to absorb orders smoothly, will lead to The Alameda Gap remained and trading volume stagnated.
advertisement
Continue reading below
Major market makers Auros, Wintermute Trading and GSR Markets say they expect the gap to start closing, but that the process will take time. They believe that funds such as BlackRock and Fidelity Investments, which began operations on January 11th (the first US ETF to directly hold Bitcoin), are gaining investor attention and increasing inflows into the virtual coin. He claims to be deaf.
“Overall, we expect a general increase in liquidity,” said Le Shi, head of trading at Auros, adding that this process will take “weeks or even months” and will depend on short-term sentiment. It added that the change could cause temporary disruption.
Market makers invest their own and borrowed funds to create a market for tokens and seek to profit from the difference between buying and selling prices.
net flow
The 10 U.S. spot Bitcoin ETFs have collectively attracted about $1.6 billion in net inflows to date, according to data compiled by Bloomberg. ETF trading volume fell to $1.2 billion on Jan. 31 from $4.7 billion on the first day, according to Bloomberg Intelligence, in part as the hype around the ETF faded.
These products are already impacting the crypto market. Bitcoin has risen 88% over the past 12 months to around $43,000, driven by expectations for ETFs and easing monetary policy. The largest digital asset when the ETF began trading ballooned to $49,000 during the day, about $20,000 below its 2021 record, but has not increased since then. Don't hold the spikes.
Spot digital asset trading volume reached a 19-month high of about $1.4 trillion in January, according to CCData, but still lower than the average monthly level of the pandemic-era crypto bull market in 2021. .
“For Bitcoin in particular, we expect trading volumes to reach 2021 levels by the end of the year,” said Evgeny Gayvoy, co-founder of Wintermute. “If we reach 2021 levels in terms of how crazy everything is, we will need to raise hundreds of millions of dollars in trading capital.”
market depth
Market depth (the ability of crypto markets to process relatively large orders without unduly impacting prices) remains lower than before the FTX and Alameda Research bankruptcies, but has improved.
The average daily volume of buys and sells within 2% of the Bitcoin price was “slightly increased” from January, although it did not reach pre-FTX levels, indicating that “market makers have not fully recovered. ,” researcher Kaiko wrote in the post. About X. The higher the amount of bids and asks within 2%, the better the liquidity and vice versa.
advertisement
Continue reading below
Mr. Kaiko coined the term “Alameda Gap” in 2022, which refers to the role hedge funds played in providing liquidity for virtual currencies and the decline due to the disappearance of hedge funds and the accompanying regulatory crackdown. It is a comprehensive term that recognizes its effectiveness.
Chuan Jing Fung, head of sales for Asia, Europe, Middle East and Africa at GSR Markets, maintained that the outlook has improved as long-term inflows into ETFs have exceeded expectations.
“As overall liquidity increases, order size increases, and market depth increases, the bid-ask spread will naturally narrow,” Fung said.
© 2024 Bloomberg