The crypto market is in trouble with the “Alameda gap”, which means that many projects are delaying their token launch plans as a result of a lackluster liquidity.
CoinMarketCap data indicates that new coin applications decreased throughout 2022. They fell from 10,264 during the first quarter to 6,350 at the end of the fourth. After Alameda Research and crypto-exchange FTX both collapsed in November 2018, the drop accelerated. Alameda used to be one of the most important market makers. It provided large amounts of liquidity for small-cap and large-cap tokens.
To date, there have been just 3,000 applications.
Guilhem Chanmont, CEO of Flowdesk Paris-based market maker and brokerage Flowdesk said via email, “Post-FTX, we have seen liquidity drying as high as 50% on major coin,” “Liquidity has decreased even more on smaller market caps as Alameda has ceased support for token issuers. Market makers such as Flowdesk have reduced their exposure to these market players.”
Chaumont stated he will advise projects to delay for 3 to 6 months. Flowdesk believes that the bear market will remain active for another 12-18 months.
Chaumont said that he recommends projects to defer by three to six month. Flowdesk believes that the bear market will be present for an additional 12-18 month.
The newly decentralized exchange DYDX declared last month that it would delay token unlock. It would have released more than 150 million tokens to founders and early investors. It also stated that it was hoping the market will rebound by December 2023. People familiar with this matter believe it is due to concerns over market liquidity.
Alameda has caused a decrease in liquidity in bitcoin and other Ether markets, as measured by the 2% market depth. This has made it more difficult for traders to execute large orders without affecting market prices and makes it harder for projects to issue tokens.
The 2% thickness is the average of both the ask/offer price and the bid prices. Kaiko, Paris-based data shows that the 2% market for bitcoin fell to less than 8,000 BTC in January despite cryptocurrency rallying over 40%.
“Crypto liquidity dominates a small number of trading firms including Wintermute (Amber Group), B2C2, Genesis, Cumberland and (the now-defunct Alameda). Kaiko explained in a November briefing that the market maker who died in October could lead to a significant drop of liquidity. We will refer to this as the “Alameda Gap”.
Arkham Intelligence data shows a decline in balances at key market players. Cumberland currently holds a balance of $75 million, down from approximately $220 million in early December. Wintermute is at $122 million, compared to $1.7 billion last Feb. and $4 billion at Oct. 2021’s peak.
Amber Group, the company that dropped a sponsorship deal for U.K. soccer player Chelsea in December, went through multiple rounds layoffs . Arkham stated that its balance is currently $92 million. This is down from the peak of around $350 million in mid-2022.
March Zheng (co-founder and managing shareholder of Bizantine Capital) said that this isn’t always a bad thing.
“Crypto market cycles are cyclical,” he explained in an email. However, it still needs stress testing conditions like the ones in the last few months to prove its resilience over the long-term. “New token issuing activity has been lower, but it opens up more opportunities to incumbent and top projects.”
Zheng describes developments in Hong Kong to bullish sentiments.
The market continues to rally with bitcoin moving past $24.5K during Asian hours Thursday while shorts were affected by large liquidation losses.
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Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
