Declining Trading Volume and Liquidity of Bitcoin on Binance Exchange

• The end of the zero fee campaign on Binance exchange affected volumes and liquidity.
• Bitcoin liquidity dropped by half from February to early May.

Bitcoin’s trading volumes and liquidity are decreasing on Binance – What does this mean and what are the consequences?

Volume and Liquidity are Decreasing on Binance!

Binance’s trading volumes and liquidity have been steadily declining since the end of the zero fee campaign in the midst of US banking failures in the first quarter of 2023.

Kaiko analyst Dessislava Aubert told CoinOtag that this has led to further price drops in Bitcoin. Aubert said, “Overall, Bitcoin liquidity on Binance has dropped by half from around $45 million at the beginning of February to $16 million at the beginning of May.”

The primary reason for the drop in liquidity was the removal of the 10-month zero fee campaign for 13 different BTC pairs on Binance, which caused market makers to leave the platform.

The Kaiko analyst specifically said that the monthly trading volume for the most traded pair, BTC-USDT, on the exchange dropped from $16 billion in March to $2 billion in April.

Aubert also added that the drying up of liquidity was “more pronounced” after the banking failures earlier this year. The collapse of two important ramps for the sector at Silvergate and Silicon Valley Bank also affected certain firms, including Ripple, Circle, Yuga Labs, and others.

Bitcoin market liquidity and trading volume on Binance

On Binance, the 1% market depth, which is calculated using bids and asks within 1% of the mid-price, has significantly decreased after the banking failures.

Low Bitcoin Liquidity – What Happened?

The result of decreasing liquidity and volumes on Binance has been increased volatility. Kaiko’s intraday volatility metric for 10-minute intervals increased significantly when liquidity began to decline on Binance.

Bitcoin intraday volatility in 10-minute intervals.

Low liquidity conditions mean thin order books that allow for wild price fluctuations caused by large orders on exchanges.

Despite positive conditions such as a positive CPI report and market expectations largely leaning towards a future interest rate cut by the US Federal Reserve, Bitcoin’s price dropped this week.

The low interest rate environment provides cheaper debt that leads to an increase in speculative assets like Bitcoin in the economy. However, the asset was unable to organize a rising trend, likely due to weak liquidity.