Crypto Market Liquidity Dwindles, Sparks Fear Among Traders

• The crypto market liquidity has been decreasing, causing concern among traders. This is a result of the fall of Alameda Research and the low 2% market depth for Bitcoin and Ethereum.
• This decrease in liquidity has caused difficulty for crypto whales to trade large volumes, as well as extended periods for fund managers to make large trades.
• Analysts expect more volatility ahead due to this decrease in liquidity, especially in the altcoin market.

Crypto Market Liquidity Dwindling

The Bitcoin (BTC) and Ethereum (ETH) industries have a combined crypto market dominance of approximately 61 percent, making their liquidity important to the success of other cryptocurrency markets. Recently, there has been an alarming drop in both cryptocurrencies’ liquidity levels that have sparked concerns among traders.

Cause of Decreasing Crypto Liquidity

The fall of Alameda Research, a sister company to the FTX exchange significantly contributed to this decrease in liquidity throughout these markets. A commonly used metric for assessing crypto liquidty conditions is 2 percent of market depth – buy and sell orders within 2% of mid-price or average bid/ask prices – which currently stands at its lowest since May 2022 with 6800 BTC according to data from Kaik’s centralized exchanges.

Implications on Trading

This thinning out of liquidity means it will be difficult for crypto whales to trade large volumes without underlying prices fluctuating significantly. Fund managers are also forced to wait extended periods for large trades as a result. Matthew Dibb from Astronaut Capital noted “realistically though, dwindling market depth has also meant that most large funds have not been participating at the same level as previous due to the amount of slippage associated” with such circumstances.

Volatility Ahead?

Analysts are expecting more volatility ahead due to this decrease in liquidity, particularly within the altcoin markets which have much lower levels than Bitcoin and Ethereum already.

Conclusion

The falling crypto market liquidity is cause for concern amongst traders who could experience significant price fluctuations when trading larger volumes due to lack of buyers/sellers available on exchanges at any given time. Furthermore, analysts expect more volatility overall resulting from these conditions primarily affecting altcoin markets which tend to be less liquid than those found on top two digital assets already