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Analysts on How Supply Overhang and Market Shocks Shape BTC Liquidity
- Post-FTX, new BTC and ETH ETFs have enhanced market liquidity, although challenges persist.
- Kaiko’s analysis underscores the complexity of understanding liquidity, advocating for a multi-indicator approach.
- The redistribution of Mt. Gox’s assets and other large holders may influence market dynamics but are not expected to cause significant disruption.
- Continuous monitoring of diverse metrics is essential to grasp the dynamic nature of crypto liquidity.
After the spectacular FTX collapse, liquidity has returned to crypto markets, especially with the launch of the much-talked-about BTC and ETH ETFs. A report by analytics firm Kaiko highlights that understanding liquidity remains complex, necessitating a multi-indicator approach rather than relying solely on volumes or market depth.
Related: Bloomberg Report: Australia Hotspot for Bitcoin ATMs with Fastest Growth Globally
They cite the Mt. Gox estate’s upcoming redistribution of approximately US$2.72 billion (AU$4 billion) in assets, which adds another layer of complexity. The way exchange Kraken – which works with the Mt. Gox estate – has handled things so far, suggests that these repayments are unlikely to disrupt the market significantly, Kaiko wrote.
Kraken has handled BTC ETF flows with just a minor increase in slippage at the US market close. Its liquidity profile suggests that any additional selling pressure from the Mt. Gox repayments is unlikely to cause structural issues that could affect the broader market.
Kaiko The Mt. Gox Redistributions Matter… But…
While the Mt. Gox Estate Redistribution and its market impact are interesting factors – and there’s been a lot of fear around this, with many expecting a large sell-off – there’s more to it.
As per Kaiko, the narrative about the redistribution of over 46k BTC might not necessarily lead to a sell-off. Although the redistribution of 100k bitcoins resulted in heavy selling, many long-term HODLers are holding onto their coins.
And as analysts at CryptoQuant show, long-term holders have actually increased by 262K, now holding 75% of BTC supply.
But Kaiko analysts believe there are other holders that could be tempted to sell:
Beyond the $2.72 billion Mt. Gox has left to redistribute, there are several other prominent holders that could be potential sources of selling pressure in the coming months.
Kaiko This includes the governments of the US, China, and Ukraine for example. Another large holder, Tesla also hasn’t moved any BTC in a while, which Kaiko believes could be happening to ‘fund new ventures’.
To maintain a clear picture of market liquidity, the analysts state that it’s crucial to continuously monitor a range of metrics that reflect the dynamic nature of the crypto markets.
Metric to Look Out For
Another interesting metric to keep an eye on is the Volume-to-Liquidity Ratio. This metric offers a sophisticated lens to examine the actual liquidity conditions in the market.
A high volume-to-market depth ratio suggests that volume far surpasses current available liquidity. This is often used to raise concerns about inflated volumes on an exchange, and thus wash trading.
Kaiko 
Kaiko concludes that the peak was especially pronounced on exchanges with the highest ratios, indicating they faced greater market pressure and more significant impacts on their order books. These findings align with observations from other liquidity metrics such as price slippage, underscoring the strain on these platforms during periods of high volatility.
Related: Donald Trump to Soon Reveal Plan to Make US The ‘Crypto Capital of The Planet’
Author
Aaron Feuerstein
Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.
