• The crypto market is dominated by Bitcoin and Ethereum, which are experiencing a drop in liquidity.
• Alameda Research, a sister company to the FTX exchange, has contributed to the crypto liquidity crunch traders face.
• Analysts warn that this thin liquidity could lead to more drastic movements in alternative cryptocurrencies.
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 stablecoins industries significantly depend on the success of the top two digital assets. As such, market analysts closely monitor the liquidity of these two digital assets to understand how well the industry is performing.
Contributors to Low Liquidity
A significant drop in Bitcoin and Ethereum’s liquidity means crypto whales are bound to struggle to trade large volumes. On the other hand, deep liquidity means cryptocurrency traders can exchange their coins without underlying prices fluctuating significantly. The fall of Alameda Research, a sister crypto firm to the FTX exchange, significantly contributed to this low liquidity situation most traders face.
Assessing Crypto Liquidity Conditions
Notably, 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 price. According to aggregate data from Paris-based Kaik, Bitcoin’s 2 percent market depth for Tether USDT pairs aggregated from 15 centralized exchanges has slipped to 6800 BTC – its lowest since May 2022 – surpassing post-FTX low record levels.
Implications for Altcoin Market
Matthew Dibb – chief investment officer at Astronaut Capital – warned that thin liquidity means more drastic moves particularly in alternative cryptocurrencies as fund managers are forced wait longer periods for large trades execution due to slippage associated with low market depths; signifying more volatility ahead for altcoin markets due their lower levels of liquidity compared to Bitcoin & Ethereum markets.
Overall, dwindling crypto liquidty could have significant implications on cryptocurrency traders & fund managers as well as altcoin markets which have lower levels of liquidty compared with BTC & ETH markets; resulting in more drastic moves & greater volatility overall across all asset classes within cryptocurrency industry.