Due to the sharp and rapid declines in the depths of the 2022/2023 crypto winter, the crypto trading volume, especially in 2023, fell to its lowest level in recent years. Despite this decline, trading continued without interruption.
Individual Transaction Count Increased Sixfold in the Second Half of the Year
According to the latest report published by market maker and liquidity provider Wintermute, volumes in the crypto market have spilled over from crypto exchanges, with over-the-counter (OTC) market volume increasing by 400% throughout the year.
Wintermute reported a decrease in OTC trading volume in the first half of 2023, but noted that the number of individual transactions remained steady. However, in the second half of the year, the number of individual transactions increased sixfold to 29 million, and the weekly OTC volume reached $2 billion.
Wintermute Group CEO and Co-Founder Evgeny Gaevoy stated in the report, “At the end of 2022, developments in the industry presented the entire sector with a challenging outlook. Markets slowed down, liquidity dried up, and we observed volumes shifting from crypto exchanges to OTC.”
In crypto trading, liquidity refers to how easily large orders can be executed without significantly affecting the market price. Without sufficient liquidity, the likelihood of large trades altering prices is higher. The lack of liquidity has been a continuous problem for crypto exchanges throughout 2023, leading many large institutional investors to move to OTC desks.
The ‘Alameda Gap’ Challenged the Market Throughout 2023
According to data compiled by CoinDesk, even though the largest cryptocurrency, Bitcoin, rose over 160% throughout the year, the crypto market continued to face challenges due to the ‘Alameda Research Gap.’ As known, Alameda Research was a leading crypto trading firm and liquidity provider founded in 2017. The parent company FTX announced bankruptcy in November 2023, leading Alameda Research to also declare bankruptcy and withdraw from the market.
Binance, the world’s largest crypto exchange by volume, also faced various issues throughout 2023. The liquidity in the exchange’s order book dropped by 25% in November following a $4 billion settlement with US authorities and the subsequent resignation of its CEO Changpeng Zhao. This decline caused the crypto exchange to go through a particularly challenging period regarding liquidity.
