Trading conditions on Coinbase (COIN) remain stable, the Nasdaq-listed cryptocurrency exchange said on Tuesday, downplaying reports of a notable drop in the bitcoin (BTC) order book liquidity amid the U.S. SEC's lawsuit against market maker Cumberland.
"We have not seen a material change or decline in BTC-USD depth at 2% throughout Oct," Coinbase's spokesperson told CoinDesk in an email, responding to a recent report by Paris-based Kaiko, which said liquidity, measured by the 2% market depth, declined on Oct. 10 after the SEC charged Cumberland for operating as an unregistered dealer in more than $2 billion worth of crypto assets traded since March 2018.
In a report published Monday, crypto data analysis firm Kaiko said the 2% BTC depth on Coinbase started declining on Oct. 10 at 18:00 UTC, dropping by 46% to 267 BTC within a few hours. The decline meant an order 46% smaller in size than before 18:00 UTC could have moved the spot price by 2% in either direction.
The 2% market depth represents a collection of buy and sell orders within 2% of the mid-price or average bid and the ask/offer prices. The metric helps gauge liquidity or the market's ability to process large trading orders at stable prices while minimum slippage – the difference between the expected price and the price at which the order is filled – for the market participant.
Kaiko noted that while the ask-side depth, representing sell orders, dropped, bid depth for buy orders increased, indicating that "market makers had readjusted their positions, possibly anticipating a price decline."
Other exchanges also witnessed a drop in liquidity, Kaiko added, saying overall liquidity on U.S. exchanges remained below pre-lawsuit levels.
In a mail to CoinDesk, Cumberland expressed reservations with the analysis, drawing attention to their recent public statement, which suggested no changes in its activities due to the SEC's lawsuit.
"We are not making any changes to our business operations or the assets in which we provide liquidity as a result of this action by the SEC," the statement said.
Kaiko, in its latest statement to CoinDesk, said the liquidity has since recovered, reiterating that the initial drop in the ask-side liquidity may have been due to shifts in market expectations.
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