Structural Shift in Crypto Liquidity Post-October Crash
Following October's liquidity crash, cryptocurrency trading, particularly for Bitcoin and Ethereum, remains fragile with significantly reduced order-book depth. Data shows that Bitcoin's market depth at a 1% price range has dropped from approximately $20 million to $14 million, while Ethereum witnessed a similar decline to just under $6 million. The overall liquidity crisis reflects a structural shift, with market makers withdrawing cautiously rather than temporarily dislocating. Despite altcoins like SOL and XRP staging a quicker recovery, their liquidity is still below pre-crash levels. Contributing factors include heavy ETF outflows and shifting federal rate expectations, which have dampened market-making activities. This situation lays the groundwork for increased volatility and potential sharp price swings in the near future, as market participants must navigate a thinner trading environment.
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