• The crypto markets are facing a liquidity crisis due to the fall of Alameda Research and other factors.
• Bitcoin’s 2 percent market depth for Tether USDT pairs has slipped to 6,800 BTC, which is the lowest since May 2022.
• Analysts have warned that this thin liquidity could lead to more drastic moves in alternative cryptocurrencies and increased volatility.
Crypto Market Liquidity Dwindling
The Bitcoin (BTC) and Ethereum (ETH) industries have a combined crypto market dominance of approximately 61 percent. Most of the altcoin and stablecoin industries significantly depend on the success of these two digital assets, so analysts closely monitor their liquidity levels to understand how well the industry is performing. Unfortunately, there has been a significant drop in their liquidity recently, which could spell trouble for traders who want to buy or sell large volumes of cryptocurrency.
One factor that contributes to this liquidity crunch is the fall of Alameda Research, a sister crypto firm to FTX exchange. Additionally, the commonly used metric for assessing crypto liquidity conditions is 2 percent of market depth – a collection of buy and sell offers within 2 percent of the mid-price or average bid/ask prices – and this has been dropping as well.
This thin liquidity means that whales will struggle when trying to trade large volumes and fund managers may have difficulty executing trades without significant slippage associated with them. Furthermore, analysts warn that this low liquidity could lead to more drastic moves in alternative cryptocurrencies as well as increased volatility overall.
According to aggregate data from Paris-based Kaik Crypto Firm, Bitcoin’s 2 percent market depth for Tether USDT pairs aggregated from 15 centralized exchanges has slipped down to 6,800 BTC; this figure is even lower than post-FTX lows.
Overall it appears that crypto markets are facing a liquidly crisis which could cause problems for traders who want to buy or sell large amounts of cryptocurrency without serious price fluctuations occurring as a result. This situation will likely result in more volatility in altcoins as well as larger spreads between bids and asks across all coins on exchanges.