Crypto Market News: Warning Bells Ring As Crypto Liquidity Crisis Deepens

The post Crypto Market News: Warning Bells Ring As Crypto Liquidity Crisis Deepens appeared first on Coinpedia Fintech News

Trading crypto assets heavily relies on the fiat market for liquidity to facilitate seamless on and off-ramping services. 

However, recent market updates reveal a distressed industry grappling with liquidity issues. In a surprising turn of events, Hotbit, a leading centralized exchange, has shut down its operations, giving its more than 5 million customers just a month to withdraw their capital.

Declining Liquidity in Top Crypto Assets

According to a recent report by @CryptoVizArt, a senior researcher at Glassnode, liquidity has notably declined in the top four digital assets: Bitcoin, Ethereum, USDT, and USDC. On-chain data highlights a continuous decline in liquidity since the Terra Luna collapse, further exacerbated by the FTX collapse towards the end of last year.

/1. The initial alarming sign was noticed when the monthly average of depositing transactions to all exchanges for the top 4 assets kept dropping since early February.
BTC
ETH
USDT
USDC pic.twitter.com/fFcUAW7ZNf

— CryptoVizArt.₿ | ZiCast (@CryptoVizArt) May 22, 2023

Worsening Liquidity Concerns

An interesting observation is that exchange activity for the top digital assets, including Bitcoin, Ethereum, USDT, and USDC, has all reached negative levels when compared to yearly data. Consequently, the analyst predicts a potentially dire situation in the cryptocurrency industry if the liquidity issues are not promptly addressed.

/4. Let's dive into Exchange Activity Trends for the top 4 assets. Below, we can see the changes in the weekly exchange activity against the yearly activity for these assets.

BTC -27%
ETH -21%
USDT -19%
USDC -27% pic.twitter.com/6JY6aaYiGn

— CryptoVizArt.₿ | ZiCast (@CryptoVizArt) May 22, 2023

The regulatory crackdown in the United States has significantly influenced numerous crypto market makers to wind down their operations, exacerbating the liquidity crisis. In recent developments, two renowned market-making firms, Jane Street Group and Jump Crypto, announced the closure of their crypto operations due to regulatory uncertainty, particularly in the United States.

Pathetic Condition Of US Exchanges 

Market data from Kaiko reveals that US exchanges have experienced a 50% decline in liquidity this year. Notably, the liquidity squeeze in the crypto market intensified following the downfall of crypto-friendly banks in the United States earlier this year.