Poor Bitcoin Market Liquidity Keeps Crypto Whales at Bay

Crypto whales, or large traders, are staying on the sidelines of the bitcoin (BTC) market despite a risk reset in traditional markets because thin liquidity is making transacting without impacting the cryptocurrency’s price difficult.

In signs of the increasing appetite for risk, stocks have gathered upside traction while the U.S. dollar has taken a beating on optimism that China’s reopening is gaining steam and the Federal Reserve may be close to winding up its liquidity-tightening cycle. In crypto, however, market depth – a measure of an asset’s price resilience to large orders – is relatively low and discouraging activity.

«Aggregated 2% BTC market depth has dropped by almost half to around 8,000 BTC from 14,000 BTC at the end of October,» analysts at Bitfinex, one of the top 10 centralized cryptocurrency exchanges by volumes, wrote in the Jan. 9 issue of the market report. «In other words, a large order of the same USD value or size placed today will have more than twice the impact on price in contrast to two months ago.»

Crypto pundits typically keep track of the 2% market depth to assess liquidity conditions. The gauge represents a collection of the buy and sell orders within 2% of the mid-price – the average of the bid and the ask/offer prices being quoted at a given time.

«This is very discouraging for whales and larger trading firms actively trading crypto purely as an alternative publicly traded market,» the analysts said.

«While daily CEX volume has always fluctuated, the period between Nov. 25 to Dec. 25 had the lowest aggregated daily trading volume for a 30-day period (discounting the holiday period to avoid skewing the data),» analysts at Bitfinex said, citing data sourced from Kaiko.

BTC, the most liquid cryptocurrency

Bitcoin, the world’s largest digital asset by market capitalization, remains the most liquid cryptocurrency. Whales, therefore, are likely to prefer it over other coins when they return to the crypto market.

Bitcoin, ether remains the most liquid cryptocurrencies. (Kaiko Research) (Kaiko Research)

The above chart by Kaiko Research compares the top 28 tokens by market value with their respective liquidity ranks, calculated using market depths, bid-ask spreads and trading volumes.

The dog-themed cryptocurrency DOGE, which is quite popular among retail investors, scaling solution Polygon’s MATIC and Chainlink’s LINK have better liquidity rankings than their market caps.

Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.

Source