Cryptocurrency liquidity has long been a thorny issue for enthusiasts and evangelists. Although they eagerly promote the ecosystem and tout blockchain’s benefits, the elephant in the room that most enthusiasts willingly ignore is the challenging liquidity conditions that impact cryptocurrency markets’ orderly flow.
The enormous volatility witnessed across the cryptosphere has been a staple of the industry since Bitcoin trading began. Intraday moves exceeding 10% are not uncommon or unheard of, and even steeper inclines and declines have dotted the trading landscape fairly regularly over the years.
Still, the market itself has been slow to address the root cause, instead blaming the activities of malicious actors, whales or technical mistakes for sudden swings and substantial mispricings that regularly arise between exchanges.
Following a coordinated XRP selloff on the recently launched Beaxy Exchange, crypto advocates must once again come to the defense of an industry that has inadequately addressed security, manipulative behavior, and most importantly, poor liquidity. As the defense of its actions demonstrate, Beaxy Exchange eagerly blamed an exploit for its own mistaken implementation of the XRP parameters for transaction payment.
However, these mistakes are entirely preventable. For the ecosystem to attract capital and enjoy its advantages over traditional financial markets, accountability for liquidity, security and transparency must materialize.
Addressing the imbalances
Far from Satoshi Nakamoto’s vision of a decentralized environment for transferring data, centralized cryptocurrency exchanges have been controversial, to say the least. On one hand, they provide one of the simplest of on-ramps for joining the nascent industry and marketplace. But on the other, these on-ramps regularly expose users to numerous risks — including fraud, theft or lack of investor protections.
While the pace of global regulation is assuredly accelerating, it…