• Nearly $24 billion of stablecoins have left exchanges since FTX collapsed last November.
• Crypto prices have risen since the start of the year, but capital continues to flow out of the space.
• Liquidity is thin in crypto markets and regulatory climate in the US is getting stricter for crypto firms.
Stablecoin Marketcap Drastically Reduced
Nearly $24 billion of stablecoins have left exchanges since FTX collapsed last November, causing a $16 billion dip in total marketcap. This indicates that liquidity continues to fall in the crypto space, despite rising prices.
Rising Prices Despite Capital Outflow
Crypto prices have risen since the start of this year, but capital continues to move elsewhere due to a strict regulatory climate in the US and high yields available on trad-fi investments. The recent news that two prominent market makers – Jane Street and Jump Crypto – were scaling back operations in the US further highlights this pattern of capital outflow from crypto markets.
Thin Liquidity Leads To Amplified Moves
The low liquidity present in Bitcoin markets means amplified moves both upward and downward; with less capital needed to shift shallow order books on exchanges, prices can move up more rapidly with less resistance. However, this could become an issue long-term as downswings could be just as drastic as upturns due to lack of capital support from investors.
Regulatory Climate Getting Stricter
The SEC has been clamping down on cryptocurrency firms operating within the US, claiming that mass non-compliance by companies is responsible for issues rather than lack of clarity around regulations themselves. This tougher stance has led many investors away from making investments within this sector despite rising prices overall throughout 2021 so far.
Cryptocurrencies are currently facing an uphill battle when it comes to attracting investors into their space, particularly those based in the US where regulations are becoming increasingly stringent by the day. With liquidity so low across all cryptocurrencies at present, it remains unclear whether or not assets like Bitcoin will be able to establish themselves as mainstream financial instruments any time soon