Here’s How Blackrock ETF Rumours Led to a Liquidity Crisis for Binance

On Monday, Binance, a globally renowned cryptocurrency exchange known for its high trading volumes, experienced the disruptive effects of unverified social media rumors. A sudden whirlwind of speculation caused a significant decrease in the platform’s liquidity, putting Binance traders in a more challenging position compared to their counterparts on Kraken and Coinbase.

Here’s what happened.

Harmful Speculation

The cryptocurrency market went into a frenzy as news rapidly circulated about the alleged approval of a spot exchange-traded fund (ETF) by BlackRock. This unverified report quickly led to a surge in the Bitcoin price, driving it up by 7.5% to reach $30,000.

However, the celebration was short-lived, as BlackRock promptly denied the claims, causing the cryptocurrency giant to lose its recent gains.

Liquidity Takes a hit

Amid this chaos, Binance’s key buy-side liquidity indicator, the 0.1% ask depth, dropped significantly from 100 BTC to a mere 1.2 BTC, with a value of $30,000. Binance wasn’t the only platform affected, as other major exchanges like OKX and Bybit also experienced a drop in their 0.1% depths, reaching around 2 BTC. On average, major exchanges saw their ask depth fall below 95 BTC.

Traders Suffer

The sudden decline in liquidity had adverse consequences for many traders within the cryptocurrency community. Notable traders like exitpump and Omz saw their investments diminish due to slippage, with losses sometimes as high as 20%. Interestingly, Kraken and Coinbase demonstrated resilience during this liquidity crisis, outperforming Binance and other competitors.

Binance in Hot Water

The liquidity crisis is not the only challenge currently facing Binance. In the aftermath of the Hamas attacks on October 7th, Israeli authorities have requested a freeze on more than 100 accounts on Binance. This move aims to disrupt the funding channels of the Palestinian militant faction. As the authorities expand their investigation, they are seeking information on an additional 200 crypto accounts, primarily hosted on Binance.

Last week, Binance acknowledged its cooperation with Israeli officials in combating terrorism financing. When questioned by the Financial Times about the exact number of suspended accounts, the company declined to provide specific details, confirming only the suspension of a “small number.”