Kaiko Market Report: Bitcoin Liquidity Much Lower Than During FTX Era, Risks of Decline by Year End?

The research institution Kaiko mentioned in its latest report the sharp rise of tokens such as SOL and BONK, and pointed out that the depth and liquidity of Bitcoin have not increased despite the recent surge. In fact, BTC tends to decline on December 31 each year compared to the annual high. The good news is that the Federal Reserve is expected to end its most aggressive rate-hiking cycle in recent years, bringing new capital to the cryptocurrency market.

BONK Surges

Based on Solana, Bonk BONK has made its mark in the world of meme coins, skyrocketing 40% in just one week after being listed on Coinbase. This year, it has surged nearly 3,000%, ranking it at number 54 in terms of market capitalization.

Kaiko believes that besides its meme attributes, BONK has gained more exposure due to its integration and adoption with many Solana projects, such as its collaboration with the Solana blockchain phone "Saga":

Solana Phone Sales Soar as Airdrop Tool? Free $BONK Tokens Worth More Than the Phone's Selling Price

SOL/ETH Price Reversal

Since the third quarter, SOL has significantly outperformed ETH in terms of price, marking the first reversal of the SOL/ETH exchange rate since 2021.

The rise in SOL's price has also heated up FTX's debt trading market.

Claim Acquisition Company Answers: How Does FTX Evaluate the Value and Transfer of Debt?

Bitcoin's Depth and Liquidity Not Increased Despite Rise

According to Kaiko's data, the recent rise in Bitcoin has not brought about more liquidity. Since the collapse of FTX, the trading volume and order depth of assets on all exchanges have decreased significantly, even less than half of what it was in October of last year.

However, if the Bitcoin spot ETF is approved as expected in January, Kaiko believes that liquidity may see a revival at that time.

Bitcoin Always Drops by Year's End

From 2013 to 2023, the price of Bitcoin on December 31st has, on average, dropped by -39% compared to its high of that year.

However, this trend seems to be improving in recent years, with lower drops in 2016 and 2020. This year, BTC has only dropped by -4.8% compared to its high on December 9th.

Shift in Fed's Monetary Policy?

Over the past two years, the Federal Reserve has been the most hawkish central bank among developed countries. Interest rate hikes data since the beginning of 2022 are as follows:

• United States: 5.25%

• United Kingdom: 5.00%

• Canada: 4.75%

• Europe: 4.50%

In its recent interest rate decision, the Federal Reserve has maintained the rate at 5.25-5.5% for the third consecutive time, laying the groundwork for multiple rate cuts in 2024 and beyond.

Kaiko also cites CME Group's FedWatch data, indicating a significantly increased likelihood of a rate cut in March, currently hovering around 67%, up from 35% a month ago.

This suggests that the most aggressive rate-hiking cycle in years may be coming to an end, which could help expand the momentum of cryptocurrencies, attracting new capital inflows into alternative coins.

Fed Maintains Interest Rates, Likely to Cut Three Times Next Year, U.S. Stocks Rise Together, BTC Approaching 43K