The report showed that crypto trading platforms are becoming more efficient but remain fractured across hundreds of markets, with liquidity profiles varying by exchange, asset pair, and trade size.
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.
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.
S&P also highlighted how political instability and exchange hacks can significantly impact localized liquidity, a prevalent issue in the crypto industry.
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.
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.
