24 May 2020

Liquidity mayhem – A deeper look into the May 19th crash

On May 19th, Coinbase’s fiat pairs saw extreme spreads in both directions at different periods. Can such events be foreshadowed by the less liquid euro pairs?
The crash of May 19th caused some extreme price dislocations in the spot market, with a huge spread opening up between the Coinbase spot market and Bitstamp and Kraken.Prior to, and during, the violent correction from $38,000 to $30,500 the USD spreads remained relatively low. But, when examining the spreads between the euro pairs at these exchanges prior to the crash, it is evident that the Coinbase pair traded at a sharp discount, possibly foreshadowing the turmoil and liquidity issues to come.
Coinbase later experienced downtime, and as the exchange opened again, the Coinbase pairs started trading at a significant premium, peaking at 6.81% above the other major spot markets.Paying attention to the less liquid Euro pairs in the spot markets might provide some information on the state of the liquidity in the market as it could foreshadow market makers de-risking and moving out of the market. Pay attention to the less liquid fiat pairs.
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