Liquidity Reaches Critical Limits in Bitcoin and Ethereum! Volatility Herald?

As the cryptocurrency market goes through turbulent times Bitcoin (BTC) and Ethereum (ETH) liquidity conditions in the markets, in May 2022 Terra’s hit its lowest levels since its collapse.

Liquidity Decreases in Bitcoin (BTC) and Ethereum (ETH)

Liquidity conditions in the Bitcoin (BTC) and Ethereum (ETH) markets continue to worsen. The current situation has become more worrying than three months ago. This makes investors think about sudden price fluctuations in the crypto market.

Liquidity refers to the market’s ability to absorb large buy and sell orders at stable prices. The metric commonly used to evaluate liquidity conditions is 2% of market depth.

It shows that for USDT pairs collected from 15 central exchanges, Bitcoin’s 2% market depth has dropped to 6,800 BTC, the lowest level since May 2022, surpassing the post-FTX low.

This is significantly lower than the October highs of over 15,000 BTC.

Ethereum’s 2% market depth has fallen by more than half since October to 57,000 ETH, led by Binance.

“Weak liquidity means harder moves, especially in alternative cryptocurrencies,” said Matthew Dibb, chief investment officer at Astronaut Capital.

The recent decrease in market depth took place amid diminished expectations of volatility in the BTC market. According to Griffin Ardern, an investor at crypto asset management firm Blofin, this type of situation often leads to a sudden burst of volatility.

The BTC Volatility Index (BVIN), which measures implied or expected volatility over the next 30 days, has dropped to 56.39, its lowest level since early 2021, according to data source CryptoCompare.

Liquidity in the crypto market began to wane in mid-November after Alameda Research and FTX went bankrupt in November. Alameda was one of the leading market makers providing billions of dollars of liquidity to small and large cap tokens.

*Not investment advice.