The altcoin market is experiencing a significant shift in liquidity, with offshore exchanges becoming increasingly dominant, according to a new report from Kaiko. The report highlights that offshore exchanges now account for a staggering 69% of total altcoin liquidity, a sharp increase from 55% in early 2022. This trend is primarily fueled by the recent resurgence in trading volume and market depth for large and mid-cap altcoins.
After experiencing a drastic drop in liquidity between April and December 2022, the market has gradually recovered, surpassing its pre-FTX average in the first quarter of 2024. However, this recovery has been uneven. The top ten altcoins by market capitalization now account for a whopping 60% of total liquidity depth, up from around 50% in early 2022. This indicates a growing concentration of liquidity among large-cap altcoins.
The report attributes this shift to the aftermath of the FTX and Terra collapses, highlighting how these events have reshaped the market dynamics. While the rebound in liquidity is encouraging, the uneven distribution poses challenges for smaller altcoins, making it harder for them to maintain liquidity and attract investors in an increasingly competitive environment.
Interestingly, the report reveals a contrasting trend for Bitcoin. US exchanges are gaining market share in Bitcoin liquidity compared to offshore markets. This suggests that some market makers may have de-risked their portfolios or moved towards Bitcoin amidst the market’s volatility.
Despite the concentration of liquidity among top altcoins and offshore exchanges, market makers continue to provide liquidity, with altcoin market depth remaining relatively flat at $270 million in the third quarter. However, this trend raises questions about the future of smaller altcoins in a market increasingly dominated by a few large players.
These market trends and their implications for investors will be key topics of discussion at Benzinga’s Future of Digital Assets conference on November 19.
