Following the announcement of the US SEC lawsuit brought against Binance.US and its CEO, Changpeng Zhao on June 5th, market depth witnessed a major decline across the top 25 cryptocurrencies.
Market makers exit Binance.US
The main reason behind the drop in market depth is due to market makers exiting the Binance.US platform in the wake of the regulatory crackdown, according to crypto data firm Kaiko. The drawdown in market depth has raised questions about liquidity and the future of the exchange.
Market depth refers to the volume of buy and sell orders at specific price levels, which can be viewed with low or high resolution. Deceased market depth means liquidity is less robust and that leads to challenges, gaps and inefficiencies when traders and investors execute orders on the exchange.
Market makers provide liquidity by quoting bid and ask prices. Their departure has left Binance.US with immediate liquidity problems, making it challenging for traders using the platform to execute orders.
Potential implications for Binance.US
The massive decline in market depth poses a risk for traders which rely on robust liquidity conditions to execute trades. Reduced availability for buying and selling means traders face order execution risks such as slippage and mismatched pricing. Poor liquidity also undermines market efficiency and serves as a strong deterrent for new potential traders, making the exchange less attractive all together and damaging its reputation.
Last week, the SEC sued Binance over number of alleged securities laws violations, which the exchange said it would defend.
According to crypto analytics provider Nansen, over $2.5 billion in net outflow has left Binance in seven days — plus over $112 million from Binance.US.
Binance CEO Changpeng Zhao disputes such figures, however.
Binance’s BNB token fell 27.8% since the lawsuit, and sits at $230 at the time of writing.
The coin’s total market cap stands at $35.95 billion, down 66.5% since its $686.31 all time high. The exchange token occupies the 4th position in terms of crypto rankings on CoinGecko.
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