Liquidity Dwindles, Threatening Price Stability

Bitcoin’s trading volume has taken a significant hit this year, and the recent market activity has been characterized by low volatility and narrow price ranges, limiting trading opportunities.

Despite rising above $27.5k briefly earlier this week, the flagship crypto-asset is back near $26k. One of the major factors restricting its price growth is dwindling market liquidity.

According to CryptoQuant’s latest analysis, this poses a precarious situation for Bitcoin, which is now at risk of a potentially steep correction.

The on-chain intelligence platform pointed out that Bitcoin market liquidity has significantly decreased in the current year.
Bitcoin derivatives trading volume, for one, has plummeted by 73% since March 2023.
Spot trading of the crypto experienced an even more severe decline and is currently down by 94% during the same period.
Meanwhile, there has been a substantial reduction in Bitcoin trading volumes in recent months. Data from CoinMarketCap suggest that over the last 24 hours alone, the trading volume has dropped by over 32%.
Since liquidity in both spot and futures markets is vital for price growth, the latest reduction in liquidity raises concerns about the Bitcoin market’s stability.
As such, a lack of liquidity can lead to heightened price volatility.
Experts suggest that if Bitcoin fails to maintain its bullish momentum and falls below the crucial support level of $25k, the market will likely decline towards the $20k area.
Besides, Bitcoin’s liquidity issues might also deter institutional investors, as pointed out by CryptoQuant.