Just how illiquid is crypto?
The latest quarterly report from Kaiko Research sheds some light on the answer. TrueUSD pair had just 2 BTC worth of liquidity in early March. That compared with 400 BTC worth of liquidity for Binance’s stablecoin BUSD and between 1,000 to 1,500 for Tether’s USDT, the world’s biggest stablecoin that has a market capitalization of more than $80 billion, as of this writing. Binance’s decision to bump up TUSD by continuing to charge zero trading fees for the stablecoin has spiked its overall market capitalization to $2 billion.
But that isn’t saying much. Market caps for stablecoins can be increased simply by issuing new tokens that may or may not be used for trading. The biggest repositories of TUSD are at Tron and Ethereum. Of the 1.2 billion TUSD tokens on the former chain, 94.1% are locked in a Binance cold wallet. This means they are not available to traders.
The change in market cap for TUSD has clearly not resulted in a corresponding increase in demand for the stablecoin in crypto markets. According to the Kaiko Research report, the BTC-TUSD trading pair is “slightly more liquid” than BTC-BUSD and the BTC-USDT pair is four times more liquid at the end of March.
About TUSD, the researchers at Kaiko write that it is unclear why Binance chose it “as it (the exchange) does not have any public ties to the token or its issuer.” A possible connection may be via Tron founder Justin Sun, who has been accused of using Binance wallets to promote the stablecoin. But we already know that crypto, with its white labeled exchanges and complicated relationships, is a big family of troubled relatives.
Banning Cryptocurrencies
Hilary Allen, a finance professor at American University, has written an article in Foreign Affairs that argues for banning cryptocurrencies from U.S. soil by preventing venture capitalists from investing in crypto projects. “Because the global cryptocurrency industry relies heavily on funding from U.S. venture capital firms, it remains an open question whether the industry could survive without that funding,” she writes.
There is no need for that. VC investments in crypto projects is already on a downward curve as compared to previous quarters. Besides it is likely that most venture capitalists have already cashed out or will soon cash out of their profits. Ethereum’s latest unstaking exercise next week is an example.
Allen has authored research papers on the topic earlier. In her latest missive, she traces the arc of crypto’s fall, beginning with the FTX crash last year, to the current crypto winter. The thrust of her arguments is that crypto is dangerous because it is interconnected and multiplies leverage in a fashion like one that existed before the financial crisis.
Ban or Regulate?
Banning crypto is a good idea. The problem is that its underlying technology, blockchain – which is nothing more than a distributed database – is heavily reliant on the United States. The United States has a substantial number of nodes for major cryptocurrencies, like bitcoin and ethereum. Amazon Web Services (AWS), which offers a cheap and cost-effective alternative to running expensive cryptocurrency nodes, is also an American company.
A better idea would be to regulate it out of existence. With their meaningless buzzwords and staking programs, most cryptocurrencies are sitting ducks for regulators. Given rising illiquidity and increased volatility, there’s also the chance that the ecosystem will implode before then and the false rhetoric of decentralization and utility will be ground to dust.