Crypto trading volume reached a multi-year low in 2023, as exchanges experienced significant declines during the depths of the crypto winter. However, this did not dampen trading activity as a new report from Wintermute, a market maker and liquidity provider, revealed that over-the-counter (OTC) volume increased by 400% throughout the year, with volumes shifting off-exchanges.
During the first half of 2023, Wintermute observed a decrease in OTC trading volume, while the number of individual trades remained stable. However, in the second half of the year, the number of unique trades grew sixfold to 29 million, and weekly OTC volume reached $2 billion. Wintermute’s CEO and Co-Founder, Evgeny Gaevoy, highlighted that the challenging outlook for the industry, caused by developments in late 2022, led to a slowdown in markets and a shift in volumes from exchanges to OTC.
Liquidity is a crucial aspect of cryptocurrency trading, referring to the ease with which large orders can be executed without significantly impacting market prices. Throughout 2023, exchanges faced persistent challenges in terms of liquidity, prompting many large institutional traders to turn to OTC desks. CoinDesk reported that even with Bitcoin’s rally of over 150% during the year, the market still faced liquidity issues, including the ‘Alameda Gap’. This liquidity gap, as measured by the 0.1% market depth on major exchanges, experienced a significant crash.
Binance, the world’s largest crypto exchange, particularly struggled with liquidity in 2023. The liquidity available in its order book dropped by 25% in November, further compounded by the $4 billion settlement with U.S. authorities and the subsequent resignation of its CEO, Changpeng ‘CZ’ Zhao. These challenges underscore the importance of liquidity for exchanges and the need for alternative trading options such as OTC desks.
In conclusion, while crypto trading volume experienced a multi-year low in 2023, OTC trading volume surged by 400% as volumes shifted away from exchanges. The lack of liquidity remained a persistent challenge for exchanges throughout the year, leading to the migration of institutional traders to OTC desks. Binance, in particular, faced significant liquidity issues, further highlighting the importance of liquidity in the cryptocurrency market.