How the 'Alameda Gap' Is Impacting Crypto Markets

produced a dramatic decline in market liquidity. And while these bankruptcies will take years to be resolved in the court system, the effects of the collapse in the market have been immediate. Investors and traders are only just beginning to grapple with the consequences. And joining us now to talk about this and more is Bloomberg reporter Katie Greifeld. The fact that liquidity is drying up and we're still range bound, I

would think would make people a little bit nervous. M okay, Katie, just to start, maybe you can lay out for us what actually is happening in crypto markets right now now that we've seen f t X and Alameda fold. It depends on what part of the crypto industry you're looking at. I mean, if you're looking at the company corporate side of things. Obviously everyone is on bankruptcy watch, just looking for the continued fallout there from the fall of SPFS empire.

If you're looking at the trading side, doesn't seem like too much is happening. And if you're looking at the price of the coins themselves, I mean, bitcoin is just absolutely glued to its range. So again, it feels like a lot is happening in terms of the companies the people involved, but in the actual market itself it's a little bit dull. I heard you were doing a lot of yellow trading. I'm not white. I think that obscure coins those they have a name, you know, we can't

say it on the right. Yeah, the the s coins, Uh, someone's doing it, but far less than years previous. Yeah. So what about in terms of market liquidity, Maybe let's start out with a definition of what actually liquidity is, because people are always talking about how the bond market it doesn't have liquidity, liquidity is running dry here and there. So what specifically are we talking about when we're talking

about the crypto market. I think that's an important point that liquidity is sort of this nebulous phrase that's thrown about in every single asset class. You have heard a lot about treasury market liquidity this year. Some people joke that people blame liquidity issues when they just can't get the price they want. But there was a report out from Kaiko which I thought was really interesting. They laid out their methodology for how they measure liquidity in crypto

and I liked this. They basically calculate the quantity of bids and asks within two percent of the mid price for a token trading on an exchange. So they looked at that for Bitcoin, for tether across centralized exchanges and they found that actually liquidity there dropped to its lowest level since June in November. So yeah, yeah, a bit of a drying up there, and it's all as a

result of what happened with f t X and Alameda. Right, so liquidity is drying up in crypto markets, meaning that people are just having a harder time buying and setting things right exactly. They actually called it the Alimated gap. Great name, It is a great name, and it really speaks to what's going on, is that you have this

big reduction in risk appetite following that huge implosion. We saw that basically, the market makers, trading shops in general, they're pulling back their bids and their asks because they want to regulate risk. Here, there's a big rethink on what people's risk physicians look like, and you're seeing that

filter out in some of these liquidity measures. So when we are talking to some of these market makers, can we maybe say that there are some positive developments as a result where I think they're telling us that they're just being much more prudent in terms of who and what they're actually trading with. So I think, I mean, it'd be easy to maybe look at the explanation that Kaiko lays out that basically these trading shops are regulating their risk more prudently and say that's a good thing.

I guess the bad thing or the potential risk here is that why is low liquidity bad? It's because, well, you can't necessarily trade at the price that you would like to, and because of that, you could see even bigger swings in the market if there were a big order to go through that has much more potential to cause a bigger swing than would be expected in a

normal liquidity environment. Obviously, it doesn't seem like we have seen that yet when you just look at the price of bitcoin glued in that sixteen thousand to seventeen thousand dollar range. But the fact that liquidity is drying up and we're still range bound, I would think would make people a little bit nervous. Let's talk about that range. So over this summer and for much of this year,

bitquin was around twenty thousand dollars. Now it's much closer to seventeen thousand dollars, And I wonder if you think seventeen thousand is the new twenty thousand. It's a good question. I mean, it is interesting just in the past a few weeks that seventeen thousand has become the new sixteen thousand. For example, for so long we were glued to sixteen thousand. This market does seem to like roundish numbers for better worse, we tend to like gravitate towards these sixteen or seventeen

or twenty handles. In terms of why that's the floor, I wish I knew, but we know that if you look at some of the exchange traded product data, for example, that there really hasn't been any selling. It feels like the marginal seller has just been flushed out of this market. Left is probably true believers and some of those so called whales, and they'll be sticking around. One would assume. So if you bought it a hundred dollars, you're probably okay,

you're happy, still maybe not happy. Up next more with Bloomberg reporter Katie Greifeld. We'll be right back. So we

have Bitcoin hovering around seventeen thousand dollars. One interesting thing that's happened recently is that it's dominance actually within the market as a as its share of the market hasn't been going up, which is unusual because in the past when we've had sell offs, its dominance has tended to go up because more people are gravitating towards the coin, you know, as quote unquote safer a place within crypto itself because it's the original, it's the largest, etcetera. Can

you talk about this and why this is a bad sign. Yeah, this is one of the interesting quirks in this range that we've been watching in bitcoin. To your point, bitcoin is like the haven of the cryptocurrencies. It's been around the longest, most liquid, largest market cap. The list goes on, But like you said, I mean it's share of the total cryptocurrency market, which total market values somewhere under a trillion dollars right now, but Bitcoin's shares about forty percent.

That number was about eighty percent. Obviously is more coins have proliferated in the market that has naturally gone down, but typically in times of turmoil, you do see its share of the market go up as investors basically flocked to this to ride out the storm. The fact that that hasn't happened there was actually a great article from you and quoting no l At Jason, who's a market watcher, she points out that maybe that's a bad thing that

people aren't rotating to bitcoin. Maybe they're just leaving the market altogether. Maybe some of those retail players individual investors who have come in over the last few years, instead of rotating to bitcoin during this period of tumult, they're just rotating out altogether. So the fact that you aren't seeing Bitcoin sort of gain a larger share here maybe not the best sign. One place that maybe is seeing a boost though, are defied exchanges. What can you tell

us about that? I think this is going to be such an interesting trend to watch as maybe some of the shell's shock nous of this moment in time fades where people actually begin investing again or where they gravitate to when they're investing in trading cryptocurrencies. Because obviously f t X had been very popular, Binance is still really popular. Coin Base has just seen its stock price absolutely plummet

during all of this. I think it's down over eighty percent year to date in the secondary market, and in my conversations that I've had with people just casually, sometimes the question comes up, why is coin based doing so poorly? Isn't it great that one of their biggest competitors has just been wiped out? And the answer that I get is a sort of what Noel Atchinson was talking about. Maybe people are leaving altogether. B There has been this

movement back into sort of decentralized exchanges. People have this real desire to own their keys at this moment. They want to be in cold wallets. They don't necessarily trust these centralized exchanges. So whether that continues going forward, or whether the Binances of the world taking even greater share of trading remains to be seen. You've read my mind as usual, because I was going to ask you about Binance, because they did come out and say that they're seeing

a boost trading activity. So they're another player that's obviously benefiting a bit from the fallout from one of their competitors, exactly, and coin bases trying to capture that same momentum. But it doesn't seem to have sort of the built in cold following of sort of the crypto native set that

finance does. When I think of coin basis, yeah, when I think of coin basis users, I think more of you know, individual investors, retail investors specifically in the United States who maybe lost a lot of money in the past year and are afraid of coming back in Exactly, Well, don it though, I'm curious. I mean, you spend all day talking to crypto people. I sit right behind you, so I hear you you're the best death mate, or

I just you dropped a lot. But I mean, in your conversations, have you noticed a shift in how people are managing risk? I do think people are just being much more cautious and much more prudence. So even in the Alameda gap story, we quote a couple of market makers who said they're just being much more cognizant who they're actually trading with who their counterparties are, who's on the other end of of trades. And I think just with the market the state that it's in right now,

everybody is still waiting for things to play out. As you said, we're on bankruptcy watch for a number of companies. Nobody knows what's gonna be happening with prices. I mean, there's just so much uncertainty, much more than really usually, and there's a lot of uncertainty in crypto, but just the recent period has been much much sort of like a heightened sense of uncertainty. So I think people are definitely being much more cautious, much more prudent. Well, this

was the best conversation I've had all week. This was sublime. I love having the meta conversations about this different ways to be thinking about things. But thank you so much for joining us, Thanks for having me. I can't wait for you to come back soon. That was Bloomberg reporter Katie Greifeld. You can find more of her reporting on the Bloomberg terminal and on Bloomberg dot com. For more, be sure to check out our twice weekly newsletter, Bloomberg Crypto.

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