Market Liquidity Brief: November 9th, 2023

Key Insights

• Centralized exchanges recorded the highest volumes since April, with CEXs accounting for the majority of spot trades and DEXs at yearly lows (7.8% of total spot volumes), signaling an increase in CEX and DEX divergence.
• Binance's market share has notably decreased from 56% to 40% within a year, and despite regulatory challenges, institutional inflows into TradFi instruments are increasing, with Bitcoin leading last week's inflows at $227 million, part of a total net influx of $260 million, marking the highest 3-month total since Oct-Dec 2021.
• The derivatives sector, specifically perpetuals, is capturing a heightened ratio of total DeFi volumes, and total open interest is approaching November 2021 levels.

Analyzing market liquidity is often reactionary, but identifying trading patterns around different events (token launches, news catalysts, etc.) help conceptualize liquidity flows. For example, Bitcoin’s recent surge to $35k has been primarily driven by larger market participants buying, evidenced through accelerated CME open interest and CEX volumes. In contrast, onchain spot volumes have been comparatively subdued. However, DEXs have seen a spike in activity, particularly in less mainstream assets.

Daily volumes for assets beyond the top 10 by market cap surged from $4-5 billion to $9-10 billion this month. This trend reveals a growing divergence in market behavior, echoing the patterns of late 2020. During that period, many investors applied a barbell investment strategy, heavily favoring Bitcoin while DeFi enthusiasts leaned towards higher volatility assets available onchain. Although this dichotomy is still emerging, it’s becoming more apparent.

Exchange Volumes

Centralized exchanges recorded their highest trading volumes since April, emphasizing a growing inclination for spot trading to occur predominantly on CEX platforms. This rise comes as decentralized exchanges see their share of total spot trading volumes dip to a yearly low of 7.8%. Notably, Bitcoin and Solana, both known for their relative illiquidity onchain, have been the primary beneficiaries of this trend, with their CEX trading volumes soaring to levels two to four times their median.