A low level of liquidity within the market is one of the biggest problems within in the cryptocurrency industry.
Liquidity is the degree of ease with which an asset can be converted into cash (or other cryptocurrency) without affecting the stability of the market. A high level of liquidity brings about fairer prices, market stability, quick exchanges and allows analysts, such as myself, to provide accurate technical analysis within the market.
Low liquidity is a problem that 0x aims to combat through their brand new Market Maker Program. The program is designed to provide incentives for market makers to provide liquidity to make the market more efficient.
The team has created a set of comprehensive tutorials which is aimed to guide market makers through the process of market making on the 0x protocol. The tutorials cover risk management and how to deploy trading bots designed specifically to be used on DEX platforms.
The team has also promised to provide direct 1:1 onboarding assistance to those interested.
Market makers are also incentivized through a compensation program that will reward any market marker up to $15,000 for building and running their own market making bots on the 0x protocol.
Market makers can take advantage of this opportunity to be one of the first movers which would give them access to arbitrage opportunities not available to others. They will also be able to take advantage of the low-cost trading available through the 0x protocol and trade on other assets such as prediction markets.
Perhaps the most important aspect of this is that the market maker will retain custody of their assets as the 0x protocol is completely decentralized. Therefore, the market maker will face no risk from outside attacks as they normally have to leave their funds within the exchanges themselves.
Let us continue to take a look at price action for ZRX/USD over the short term and continue to provide any potential areas of significant support and resistance moving forward.
0x has seen a small price decline totaling 4.29% over the previous 24 hours of trading. The cryptocurrency is now exchanging hands at a price around $0.33, at the time of writing, after seeing a price hike totaling 10% over the past trading week.
0x is now ranked in 32nd position as it currently holds a $178 million market cap value. The 35-month old project has lost a significant 54% over the past 90 trading days as it now trades at a value that is 84% lower than the all-time high price.
Analyzing price action from the short 4-hour perspective above, we can see that after ZRX/USD had rebounded from the support at the downside 1.414 Fibonacci Extension level (drawn in blue) priced at $0.2726, the market went on to rally.
It continued to rise until it reached resistance at a medium-term bearish .618 FIbonacci Retracement level (drawn in red) priced at $0.4023. This Fibonacci Retracement is measured from the final “lower high” placed on November 29, 2019 to the low seen during December 2018.
After hitting this area of resistance, price action rolled over and began to fall until it reached support at a short-term .786 Fibonacci Retracement level (drawn in green) priced at $0.2941 towards the end of December 2018.
After tilting this support, the market has risen slightly but has failed to break above resistance at the short-term .382 Fibonacci Retracement level (drawn in green) priced at $0.3491.
Since January 1, 2019, the market has been trapped within a range between $0.3491 and $0.32, leading to a neutral market trading condition.
If we would like to see the market turn bullish, we would need to see ZRX/USD break above the $0.40 handle and continue further higher.
If the sellers begin to pressure the market lower, we can expect immediate support to the downside to be located at the lower boundary of the range priced at $0.32. This is closely followed by the short-term .618 Fibonacci Retracement level priced at $0.3170.
Further support below $0.30 can then be located at the short-term .786 and .886 Fibonacci Retracement levels (drawn in green), priced at $0.2941 and $0.2805 respectively.
The final level of support to highlight is located at the downside 1.414 FIbonacci Extension level (drawn in blue) priced at $0.2726.
Alternatively, if the buyers can step back into the market and begin to push price action higher, we can expect immediate resistance above to be located at the short-term .5 and .382 Fibonacci Retracement levels (drawn in green), priced at $0.3330 and $0.3491 respectively.
Further resistance above this can then be expected at the medium-term bearish .5 and .618 Fibonacci Retracement levels (drawn in red), priced at $0.3761 and $0.4023 respectively.
If the bulls can then break cleanly above the $0.40 handle, further higher resistance can be located at the short-term 1.272 and 1.414 FIbonacci Extension levels (drawn in purple), priced at $0.4364 and $0.4555 respectively.
The final level of resistance to highlight is located at the short-term 1.618 FIbonacci Extension level (drawn in purple) priced at $0.4830.
Market liquidity is an important factor to consider when creating a decentralized protocol and it seems like the 0x team is on the ball with the creation of the market making program. If it does work to bring in liquidity to the protoco,l we may see more trading volume entering the 0x protocol DEXs.
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