Bitcoin surpassed the $68,000 mark over the weekend after President Joe Biden announced he would withdraw from the presidential election scheduled for November 2024.
This incident showed how sensitive the global cryptocurrency market is to political events in the U.S. The disparity between the U.S. influence on the global cryptocurrency market and its share of the global market becomes clear when analyzing trading volumes.
According to data from Kaiko, US exchanges currently have a market share of 11.79% in terms of trading volume, while global exchanges dominate with 88.12%.
This difference indicates that almost all crypto trading activity on centralized exchanges takes place outside of the U.S. A variety of reasons contribute to this difference, but the U.S. regulatory environment stands out as the most important factor.
The country's regulatory environment is much stricter than in other regions. The SEC's strict oversight and enforcement actions have led retail and institutional investors to participate with caution. US-based exchanges are required to implement strict compliance measures that vary from state to state, preventing many retail investors from participating.
But despite its low trading volume share, the US accounts for almost half of the market's liquidity: US-based exchanges account for 45.09% of global market depth at the 2% level, according to Kaiko data.
Market depth indicates the general ability of a market to sustain relatively large orders without significantly affecting price. It is an important metric because it acts as an indicator of overall liquidity. Market depth with a large amount of orders within a 2% range indicates that large orders can occur without causing large price movements. This high liquidity helps reduce price volatility, which is especially important for institutional traders who deal with large buy and sell orders.
High liquidity in the U.S. is driven by a large institutional presence, which has increased dramatically since the launch of spot Bitcoin ETFs this year, as these products contribute to increased liquidity and thicker order books on the exchanges where the ETFs are traded or tracked.
The process of creating and redeeming a Spot Bitcoin ETF involves large transactions in the underlying Bitcoin market. When new ETF shares are created, authorized participants (usually exchanges such as Coinbase) purchase an equivalent amount of Bitcoin from the market, contributing to market depth. Conversely, when ETF shares are redeemed, the underlying Bitcoin is sold, further increasing market liquidity and depth.
The sheer size of this market is why news from the US has only moved Bitcoin’s price less than 8% from its all-time high, despite making up a tiny fraction of trading volume.
The post The US Drives Global Markets Because of Liquidity, Not Volume, appeared first on CryptoSlate
