The recent approval of U.S.-based spot bitcoin exchange-traded funds (ETFs) in January has not only influenced the price of the cryptocurrency but also significantly impacted order book liquidity, indicating increased ease of trading at stable prices.
As anticipated since December, the effects of these ETFs on bitcoin’s market depth have become more pronounced over the past month. Early Tuesday, the 2% market depth across 33 centralized exchanges surged to $539 million, marking the highest level since October. This represents a notable 30% increase since the inception of spot ETF trading on January 11, according to data from Paris-based Kaiko.
Market depth, or liquidity, plays a crucial role in facilitating large-volume trades without causing significant price fluctuations, thereby reducing slippage—the disparity between quoted and executed trade prices.
Notably, U.S.-based exchanges have spearheaded the surge in global bitcoin market depth, now accounting for 48% of the total 2% market depth, compared to just 14.3% before the anticipation of spot ETFs in October.
Despite the significant improvement in market depth, it remains below the levels seen prior to the collapse of Sam Bankman-Fried’s FTX exchange and its affiliate, Alameda Research, in November 2022, which boasted market depths exceeding $800 million.
The increased liquidity in bitcoin’s order books underscores the growing impact of ETFs on market dynamics, offering traders enhanced trading opportunities and reduced execution risks.