The Post-FTX Landscape
The collapse of FTX in November 2022 was not just a fraud story. It was a market structure story. When one of the world’s largest crypto exchanges ceased operations overnight, it revealed how dependent the market had become on a small number of venues for both liquidity and price discovery. The contagion was fast and severe: spreads on surviving exchanges widened sharply, depth dropped by 60 to 70 percent across major pairs within days, and several market makers who had been using FTX as a primary venue found themselves unable to unwind positions.
Two and a half years later, crypto market structure looks meaningfully different — though not necessarily in the ways that were predicted in the immediate aftermath of the crisis. This article examines where liquidity lives now, how fragmentation affects execution, and what the growing influence of ETF-linked flows means for price dynamics.
Where Liquidity Lives: The Exchange Landscape
The post-FTX consolidation benefited Binance in the short term, as the largest remaining exchange by volume absorbed a significant share of displaced flow. However, Binance’s own regulatory difficulties in 2023 and 2024 — including a $4.3 billion settlement with the US Department of Justice and the departure of its founder Changpeng Zhao — introduced new uncertainty, and its share of global spot volume declined from around 60 percent at its peak to closer to 40 percent by mid-2025.
The beneficiaries have been a mix of regulated venues and offshore alternatives. Coinbase has substantially increased its institutional market share, driven in part by its role as custodian for the majority of US-listed spot Bitcoin ETFs. CME’s crypto derivatives business has grown significantly, with open interest in Bitcoin futures frequently exceeding the levels seen prior to FTX. Bybit and OKX have each grown their institutional business, though both remain primarily offshore from a US regulatory perspective.
The result is a market that is less concentrated at the top but more fragmented across venues. For a trader in 2020, routing the majority of flow through two or three venues was sufficient to capture most of the available liquidity. Today, meaningful price improvement often requires aggregating quotes from five or more venues, and the optimal routing decision changes depending on market conditions, trade size, and the time of day.
The Offshore-Onshore Split and Its Execution Implications
A persistent feature of crypto market structure is the split between onshore regulated venues — primarily CME futures and US-registered spot exchanges — and offshore venues that offer higher leverage, a broader range of products, and lighter regulatory oversight.
This split matters for execution in several ways. First, price discovery is not always led by the same venue. In calm, high-liquidity conditions, CME futures and Coinbase spot prices tend to lead, reflecting the participation of large institutional players with conservative execution mandates. During volatile periods, particularly in Asian trading hours when offshore platforms are most active, price discovery can shift to Binance or Bybit, where funding rate dynamics and higher leverage create faster-moving but less stable price signals.
Second, arbitrage between onshore and offshore venues is constrained by regulatory and banking frictions that do not exist in traditional asset markets. A hedge fund that wants to arbitrage a persistent basis between CME Bitcoin futures and Binance perpetuals faces the challenge that moving capital between these venues requires navigating different banking relationships, different KYC/AML requirements, and potentially different legal entities. This friction means that basis relationships can persist longer than efficiency would predict, creating opportunities for participants who have solved the operational problem.
Third, the offshore perpetual futures market — which has no equivalent in traditional commodity markets — has become one of the dominant price-forming instruments in crypto. Perpetual futures (or “perps”) are futures contracts with no expiry date that maintain their price alignment with spot via a periodic funding rate payment between longs and shorts. When the market is net long and futures trade above spot, longs pay shorts a funding rate, which incentivises arbitrage that pushes the basis back toward zero. The funding rate has become one of the most watched sentiment indicators in crypto markets, and understanding its dynamics is essential for any trader in this space.
ETF Flows and the New Arbitrage Regime
The introduction of spot Bitcoin ETFs in the United States in January 2024 introduced a new and influential participant class: authorised participants (APs) who arbitrage between ETF shares and the underlying Bitcoin.
The mechanics are straightforward. When ETF shares trade at a premium to net asset value, APs create new shares by delivering Bitcoin to the fund and selling shares in the secondary market. When shares trade at a discount, they redeem shares for Bitcoin and sell the Bitcoin in spot markets. This arbitrage mechanism, familiar from equity and commodity ETFs, keeps ETF prices tightly linked to spot Bitcoin prices.
What is less well understood is the market impact of large ETF creation and redemption flows. On days with significant net inflows — and there were numerous days in the first six months of the ETF launches with inflows exceeding $500 million — the APs need to source Bitcoin in the spot market. This creates directional pressure on spot prices that is predictable in timing (end-of-day NAV calculations drive creation/redemption mechanics) but difficult to forecast in magnitude.
Traders who understand this dynamic have, at times, been able to anticipate the demand-driven price pressure that accompanies large inflow days. The signal is noisy and the edge is not persistent, but it represents a genuine information asymmetry that was not present in the pre-ETF market.
More broadly, the ETF flows have altered the relationship between Bitcoin’s price and the stock market. ETF inflows tend to be correlated with equity market sentiment — large institutional allocators who are adding Bitcoin exposure tend to be the same allocators who are increasing equity exposure during risk-on periods. This has modestly increased Bitcoin’s correlation with the S&P 500 on a rolling basis since the ETF launches, though the correlation remains lower than for most risk assets.
Market Making and the Role of High-Frequency Firms
The crypto market making landscape has consolidated significantly since 2022. The firms that dominate liquidity provision today — Jump Trading’s crypto arm, Wintermute, Cumberland (a subsidiary of DRW), GSR, and a handful of others — are sophisticated operations with infrastructure comparable to top-tier equity market makers.
The economics of crypto market making differ from equity market making in important ways. In equities, market makers receive exchange rebates for providing liquidity and are protected by regulation that prevents toxic flow from consistently targeting their quotes. In crypto, the rebate structure varies significantly across exchanges, some of which charge market makers rather than paying them, and the protection against adverse selection is weaker.
This means that crypto bid-ask spreads encode a larger adverse selection component than equity spreads of comparable size. A tight spread on a major crypto exchange does not necessarily mean that the depth behind it is robust; large aggressive orders can move through available liquidity quickly, particularly in altcoins with thinner markets. Traders who have calibrated their market impact models on equity or futures markets will generally need to adjust upward when working the same notional size in crypto.
Practical Execution Considerations
Several practical points emerge from this structural analysis.
Venue selection matters more than in most markets. The difference between best and worst execution across major venues for a standard institutional-sized Bitcoin trade can be 10 to 20 basis points in normal conditions and significantly more during volatile periods. Smart order routing and multi-venue aggregation are not optional for serious traders.
Time-of-day effects are pronounced. Liquidity depth typically peaks during overlapping US and European hours (roughly 14:00 to 20:00 UTC) and is thinnest in the late Asian session (02:00 to 07:00 UTC). Large trades executed during off-peak hours face meaningfully higher market impact. This is a structural feature of a global 24/7 market with uneven geographic participation.
Funding rates require active monitoring. For any strategy involving perpetual futures, the funding rate is a significant cost or revenue item that must be factored into the P&L model. Annualised funding rates have ranged from minus 20 percent (extreme bearish conditions in 2022) to plus 100 percent (euphoric conditions in early 2021). Holding a leveraged long position through an extended high-funding-rate period can be more expensive than the move in the underlying price justifies.
Liquidation cascades are a real risk. Crypto markets are structurally prone to liquidation cascades — events where falling prices trigger automatic liquidations of leveraged positions, which in turn create more selling pressure. The data is public on most major exchanges (liquidation feeds are available via API) and monitoring aggregate open interest and estimated leverage ratios gives some advance warning of conditions where a cascade is possible.
Conclusion
Crypto market structure in 2025 is meaningfully more robust than it was in 2022, but it retains features — fragmentation, offshore-onshore friction, perpetual funding dynamics, and leverage-driven volatility — that require specific expertise to navigate.
The professionals who have built that expertise over the past several years are operating with a significant advantage. For newcomers, the honest advice is to start with a sober assessment of execution infrastructure and market impact costs before thinking about alpha generation. In a market where operational edge can be as valuable as information edge, getting the basics right is non-negotiable.
