Binance, one of the world’s leading crypto exchanges, has suffered a significant impact on its Bitcoin liquidity following the removal of its zero-fee Bitcoin trading promotion.
Indeed, on 22 March, the exchange discontinued its zero-fee trading promotion for 13 spot trading pairs with Bitcoin (BTC), which had helped boost the exchange’s market share by more than 20% over its competitors.
It also announced the elimination of trading fees for the BTC-TUSD pair, which had been sidelined in September and only recently re-included.
Summary
Binance and the impact of the removal of zero-fee trading on Bitcoin
The impact of zero-fee trading on Binance cannot be underestimated, as zero-fee trading volume accounted for the majority of total volume as of mid-March 2023, reaching a high of 66%. This is the data from Kaiko‘s report.
However, since fees were reinstated only five days ago, the market share has been halved and is currently less than 30%, with the fee-free BTC-TUSD pair now accounting for 2.8% of total volume.
Trading volume for the most liquid crypto market, BTC-USDT, has been the most affected, with an average decrease in volume of 90%.
The removal of zero-fee trading also had an impact on the order data in the book.
When fees were first removed, spreads for the BTC-USDT trading pair increased because market makers could no longer count volume toward Binance’s VIP fee program.
To compensate, they had to increase spreads, essentially transferring fees to price takers. The spreads immediately decreased once the commissions were reinstated and currently stand at 0.004 bps.
It is unclear why Binance chose to promote its TUSD pair, although it appears that the exchange selected the stablecoin as the successor to BUSD, which is being phased out due to regulatory actions in the United States.
Traders follow the low fees and whatever Binance does has a huge influence, so one can expect TUSD to become an increasingly important stablecoin.
Overall, Binance’s global market share is already down 10% since last week, although a two-hour outage may have contributed to that.
Arbitrum ecosystem tokens up after ARB distribution
Arbitrum ecosystem tokens with lower market capitalizations rose sharply after the news that Layer 2 would finally distribute its ARB token.
This airdrop was for users and protocols on the network, with GMX (token: GMX) and Treasure DAO (MAGIC) receiving the highest allocations of 8 million ARB each.
Camelot DEX (GRAIL), a fast-growing native Arbitrum exchange, received 2.1 million tokens, while Radiant Capital (RDNT), a cross-chain lending and borrowing protocol, received 3.3 million tokens.
3pool curve depressed after the USDC de-peg
The second largest stablecoin fell below $0.90 just a couple of weeks ago and even now the effects are being felt. No other “place” demonstrates this better than Curve’s 3pool, one of the best indicators of stablecoin sentiment.
Currently its TVL stands at only $420 million, up from $5.5 billion in January last year.
Moreover, the pool consists of only 11% (less than $50 million) USDT, as users have opted for stablecoin with (apparently) no exposure to ongoing banking and regulatory issues in the US.
ARB Liquidity on the rise, stabilizes after listing
Trading of ARB began on most exchanges just after the token was distributed via airdrop.
However, users found it difficult to request and move their received tokens as the Arbitrum network became extremely congested and the Foundation’s request site crashed.
As a result, in the first few hours of trading, most of the centralized exchange pairs were relatively illiquid. Six hours passed before the 1% market depth (the sum of bids and asks within 1% of the average price) reached nearly 2 million ARB.
However, liquidity continued to grow over the weekend, reaching nearly 2 million, most of it in USDT pairs. USD pairs have about twice the liquidity of those included in Other pairs (USDC, EUR and BTC), with 325,000 to 160,000, while USDT pairs hold 1.9 million ARB. Tether continues to be absolutely dominant in CEX trading.
Rising price slippage on US exchanges
For a $100,000 BTC sell order on the US markets, the most liquid USD pair (Coinbase) and the most liquid USDT pair (Binance) had similar slippages of 0.1% in early March.
However, concerns about USD payment circuits have hit the liquidity markets in the United States, and we can see the increase in slippage around 13 March on Coinbase, compared to only a slight increase on the USDT pair on Binance.
Slippage for the BTC-USD pair on Coinbase remains double what it was earlier this month, as USD liquidity suffers across the crypto market.
The most liquid BTC-USD pairs on Bitfinex and Binance.US have both experienced spikes in slippage, increasing 0.1% since the beginning of the month, with spikes of 0.2% and 0.4%, respectively, during the peak of US banking fears.
After Binance, the weekly options volumes on Bitcoin are down from the yearly high
Weekly options volumes on BTC on the largest options exchange, Deribit, fell 40% last week to $6 billion, after reaching an annual high of more than $10 billion earlier this month.
The decline comes amid a slowdown in the BTC spot price following the Fed’s decision to raise interest rates and ongoing concerns about the health of the US banking system.
Overall, bullish (buy) bets continue to outpace bearish (sell) bets, accounting for more than 60% of total volume.
ETH options volumes largely disappointing this year
ETH options volumes have been largely disappointing this year, standing at around $2 billion.
The trend suggests weak hedging and speculative demand despite increasing volatility and the upcoming Shanghai fork, a major risk event for Ethereum that will introduce changes to its consensus mechanism.
The disappointing volumes are in stark contrast to last year’s DeFi boom, which drove the use of Ethereum-based protocols and increased demand for ETH options.
However, the recent growth of NFTs and the growing popularity of layer 2 scaling solutions could provide a catalyst for renewed demand for ETH options in the coming months.
SEC investigates Robinhood’s crypto unit
The US Securities and Exchange Commission (SEC) has opened an investigation into Robinhood’s crypto unit, according to a regulatory notice filed by the company.
The investigation concerns certain registration requirements for Robinhood Crypto and related personnel.
The notice did not provide further details about the investigation. Robinhood’s crypto trading platform is growing rapidly, with the company reporting 18 million customers trading crypto in Q4 2022.
The investigation represents another blow to the company, which has suffered criticism for its handling of GameStop’s trading frenzy and its controversial payment-to-order business model.
Crypto Derivatives
Last week, weekly BTC options volume on the leading options trading platform Deribit fell 40% to $6 billion after reaching an annual high of more than $10 billion earlier this month.
This decline comes in conjunction with a decline in the spot price of Bitcoin, following the Fed’s decision to raise interest rates, and concerns about the health of the US banking system.
Despite this, bullish bets (calls) continued to outweigh bearish bets (puts), accounting for more than 60% of total volume.
ETH options volumes, on the other hand, have been rather disappointing this year, remaining around $2 billion.
This suggests weak demand for hedging and speculation, despite increasing volatility and the upcoming Shanghai fork, a major risk event for ETH. In addition, BTC weekly options volumes are currently 70% higher than those of ETH, an increase from 57% in January.
Analysis from a macro perspective
Bitcoin continues to be the best performing asset YTD (Year To Date). Despite increasing regulatory pressures and the global banking crisis, the YTD returns of BTC and ETH, as measured by Sharpe’s ratio, are higher than those of traditional assets.
Sharpe’s ratio measures the excess return of an asset relative to its volatility. A ratio of 1 or higher is generally considered good. Both BTC and ETH ratios are above 3, well above the S&P 500, which records a ratio of 0.8.
In general, returns on risk-adjusted crypto assets have improved over the past year due to a decrease in volatility, as the amount of risk taken by investors is decreasing relative to the compensation received.
This suggests that the volatility profile of crypto assets is approaching that of traditional assets. Some analysts predict that by 2025 the two types of assets will be on par. However, the reduction in crypto liquidity, known as the “Alameda gap,” that has occurred since last November has increased asset volatility.
An interesting fact is that the realized volatility of BTC exceeded that of ETH for the first time in a year last week. Historically, this has happened only a few times since the launch of ETH in 2016.
In general, ETH is more volatile than BTC and performs higher during bullish markets but lower during bearish markets. However, this trend has reversed in recent weeks, with ETH underperforming BTC by a large margin in March.
Coinbase: shares decline following Wells’ notification
Last week, Coinbase’s share price plummeted 22% in a single day after the exchange received a Wells notification from the US Securities and Exchange Commission (SEC).
This notification is a letter informing individuals or companies of a completed investigation in which violations were found. The notification is said to be related to Coinbase’s spot market and staking program Earn, as well as its core portfolio products.
Although a Wells notification does not represent an enforcement action, it often precedes it, and this has driven Coinbase’s share price down.
Coinbase: share price drop following Wells’ notification.
Last week, Coinbase’s share price plummeted 22% in a single day after the exchange received a Wells notification from the US Securities and Exchange Commission (SEC).
This notification is a letter informing individuals or companies of a completed investigation in which violations were found.
The notification is said to be related to Coinbase’s spot market and staking program Earn, as well as its core portfolio products. Although a Wells notification does not represent an enforcement action, it often precedes it, and this has driven Coinbase’s share price down.