Crypto Market Liquidity Dwindling, Sparks Fear Among Traders


• Bitcoin and Ethereum have a combined crypto market dominance of roughly 61%.
• The fall of Alameda Research significantly contributed to the crypto liquidity crunch that many traders face.
• Thin liquidity means more drastic moves, particularly in alternative cryptocurrencies, leading to an increase in 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 stablecoins industries depend on the success of these two digital assets; as such, analysts closely monitor their liquidity levels to understand how well the industry is performing. A significant drop in Bitcoin and Ethereum’s liquidity means that crypto whales may struggle to trade large volumes, while deep liquidity allows cryptocurrency traders to exchange their coins without underlying prices fluctuating significantly.

Contributing Factors

The fall of Alameda Research – a sister crypto firm to FTX Exchange – has significantly contributed to the current crypto liquidity crunch faced by many traders. To assess this situation, analysts commonly use the metric 2 percent market depth – which is a collection of buy and sell offers within 2 percent of the mid-price or the average bid/ask price.

Consequences for Traders

Matthew Dibb, chief investment officer at Astronaut Capital, warned that thin liquidity meant more drastic moves were likely – particularly in alternative cryptocurrencies. Fund managers are forced to wait longer periods – days or weeks – for large trades to be executed due to slippage associated with dwindling market depth. This could lead to increased volatility in the altcoin market, which usually has lower liquidity than its counterparts.


In conclusion, it is clear that thinning markets can cause serious problems for cryptocurrency traders due to decreasedliquidity and potential for wide price swings. It remains important for investors and analysts alike to keep track of current conditions so they can make informed decisions about trading activity in order reduce their exposure risk when taking part in cryptocurrency exchanges.