Silvergate issues affecting crypto market depth in USD

Crypto’s market depth in US dollars has dropped significantly in the past month following Silvergate’s struggles, according to Kaiko data.

American stock exchanges are becoming less liquid.

Kaiko said U.S. exchanges and market makers are becoming less liquid as they appear to be most affected by Silvergate’s implosion.

According to Kaiko data, Bitcoin and Ethereum market depth improved across international exchanges such as Binance, OKX and ByBit over the past 30 days. However, they worsened on US-based exchanges such as Coinbase and Kraken during the same period.

The crypto market’s liquidity measures how well the market can absorb large buy and sell orders without significantly affecting prices.

The on-chain data aggregator noted that the USD liquidity level was close to that of the Binance USD (BUSD) stablecoin. However, BUSD’s liquidity for its top pairs had fallen by as much as 40% when New York’s financial regulator ordered the asset’s issuer Paxos to stop further minting.

While BUSD’s liquidity level has started to improve slightly, Kaiko said the Silvergate news is “weighing on the USD pair”, bringing it closer to the level of the embattled stablecoin.

Meanwhile, the drop in liquidity across US exchanges appears to have contributed to ETH and BTC’s slight negative market depth during the period.

Silvergate role in cryptos USD liquidity

The significant drop in USD liquidity shows Silvergate’s role in connecting the traditional financial system and the crypto industry.

At its peak, the bank’s Silvergate Exchange Network (SEN) reportedly processed over $219 billion in transfers and generated $9.3 million in revenue during the fourth quarter of the 2021 market rally.

Major crypto firms, including Coinbase, Gemini, Paxos and Circle, used the services. Unfortunately, these institutions were forced to drop the bank due to concerns about its ability to continue operations.

Altcoins affected

Meanwhile, the worsening liquidity appears to be affecting altcoins across multiple exchanges.

Kaiko’s data showed that several exchanges had lost more than 15% of their market depth for altcoins, such as Cardano’s ADA, Polygon’s MATIC, Dogecoin’s DOGE, Solana’s SOL and Polkadot’s DOT in the last 30 days.

According to the data, the least affected exchange was Coinbase, whose depth for these cryptoassets fell 14%, while others such as Bybit and Kraken lost 17% each. Binance and its US subsidiary lose 20% respectively, while Huobi is down 35%.

The euro’s volume rises against the USD.

While the USD’s liquidity has declined against the crypto market, the EU’s euro has gained ground against Bitcoin, according to Kaiko data.

Kaiko pointed out that the Euro’s volume against the USD has almost doubled since FTX’s collapse in November 2022. According to the firm, the Euro’s volume rose to 16% from 9% for BTC markets.

The increased Euro volume has coincided with the rise of Euro-backed stablecoins. As a result, the top two stablecoin issuers, Tether and Circle, have introduced stablecoins backed by the euro to gain market share.