Crypto Still Plays Catch-Up: Liquidity Gap Persists Despite Market Efficiency Wins – S&P Report
Crypto markets may be getting faster, but they’re still not deep enough to rival traditional finance’s liquidity pools. S&P Global’s latest analysis cuts through the hype—turns out blockchain efficiency gains haven’t solved the ’thin order book’ problem.
Wall Street’s old guard can still move billions without moving prices. Meanwhile, crypto whales trigger 10% swings with a single trade. Some ’revolution.’
The report quietly exposes an open secret: most institutional money still treats crypto like a speculative side bet rather than a primary market. But with T+0 settlement and 24/7 trading, the infrastructure’s already outpacing legacy systems. Liquidity will follow—just watch.
CEX vs. DEX
Centralized exchanges (CEXs) mirror traditional stock markets in their reliance on order books and custodial accounts. They offer high speed and low spreads on popular stablecoin pairs, especially large-cap coins like Bitcoin.
In contrast, decentralized exchanges (DEXs) allow users to maintain custody through automated market makers (AMMs) but introduce price slippage and impermanent loss, especially during volatile periods or large trades.
Despite these challenges, some digital assets, particularly BTC, ETH, and USDT, show comparable or even narrower bid-ask spreads than mid-cap equities like Broadcom.
Overall, CEXs continue to dominate volume in the market and provide higher liquidity compared to their decentralized counterparts, which provide deeper access.
The report also noted that the launch of Bitcoin and Ether ETFs in the US has increased trading activity and deepened liquidity on crypto exchanges, though ETF trading volumes remain smaller than their underlying assets.
Infrastructure constraints
S&P also highlighted how political instability and exchange hacks can significantly impact localized liquidity, a prevalent issue in the crypto industry.
A political crisis in South Korea triggered a 30% drop in BTC-KRW pricing on Upbit in December 2024, while a February breach at Bybit led to a sustained decline in ETH trading volume. These disruptions underline the fragility of fragmented order books.
The report also highlighted that stablecoin liquidity remains higher in crypto-to-crypto trades than in fiat pairs, due to banking hurdles and compliance friction. However, their growth combined with easing regulations could enforce their role in finance.
Meanwhile, slippage analysis on Uniswap shows that low-volatility stablecoin pairs maintain near-zero slippage, while ETH pairs can show high variation, especially during sharp price moves.
According to the report, while crypto market liquidity is maturing with the entry of institutional investors and regulated products, fragmentation, design limitations, and inconsistent depth continue to hinder full-scale efficiency.
