Bitcoin liquidity, increased market volatility pose headwinds

Crypto volatility has reached its lowest point in years by the end of September, while liquidity remains concentrated in a few markets

article-image

Stanslavs / Shutterstock, modified by Blockworks

share

As the fourth quarter gets underway, the intricate dance of monetary policy, evolving liquidity patterns and inherent market volatility is set to define the crypto market’s narrative in the coming months, analysts say.

A marked decrease in crypto volatility throughout the third quarter, as highlighted in Kaiko’s Quarterly Market Report last week, suggests the asset class may either be reaching maturity or experiencing dampened activity, it said.

Crypto volatility consistently decreased in the last quarter, reaching its lowest point in years by the end of September. A slide in volatility has persisted since mid-2022 following the downfall of several major industry players including Terra, Celsius and Three Arrows Capital.

According to the latest Bitcoin Volatility Index figures, the asset’s 30-day estimate has dropped to levels not seen since March 2019 to 0.57%. The index quantifies the daily variation in bitcoin’s price compared to its initial value.

As a result, bitcoin’s (BTC) spot volume for the third quarter has declined to $6 billion, marking a consistent drop from $7 billion in Q2 and $13 billion in Q1.

Even the court’s decision regarding Grayscale at the end of August, which mandates the SEC to reevaluate Grayscale’s proposal and is thought to boost the chances of a BTC ETF spot approval, has failed to lead to notable price shifts.

The market also appears to be moving towards a greater concentration of liquidity, Kaiko highlighted.

Data shows that Binance now accounts for 30.7% of global market depth and an astonishing 64.3% of the total trade volume. This comes into sharper focus when noting that the top eight crypto exchanges hold more than 90% of the market depth and 89.5% of the trading volume.

“Liquidity concentration is a natural phenomenon that ultimately benefits individual traders, giving them better prices for their orders,” Kaiko said in its report. “However, because crypto markets by nature emphasize decentralization, liquidity concentration, especially on centralized exchanges, is worrying.”

In light of the asset class’ centralized connection, Bloomberg analyst Mike McGlone said last week the Federal Reserve’s implicit influence over bitcoin has largely been due to its nature as a round-the-clock leading indicator within the wider financial landscape. 

The observed liquidity redirection away from bitcoin suggests a potential correction ahead, McGlone said in a social media post.

“The bottom line for bitcoin at the start of 4Q may be that liquidity remains negative, with price implications,” McGlone posted. “Coming of age in a zero interest-rate world, the crypto hangover could be enduring as global rates continue to rise.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

kamino cover.jpg

Research

Kamino has solidified its position as the leading money market on Solana and is emerging as a DeFi bluechip. Although DeFi competition is fierce, Kamino has kept iterating on its product to provide the best-in-class UX, paired with a robust risk management framework and battle-tested infrastructure. Given the rollout of Kamino Lend V2, the protocol may scale aggressively over the coming months, penetrating previously untapped markets in Solana DeFi.

article-image

Also in the tokenized fund space, Franklin Templeton launches on Base and Securitize hits $1 billion in tokenized RWA onchain

article-image

It turns out that bitcoin never actually hit an all-time high in March. Thanks a lot, inflation.

article-image

Spire, Citrea and Nillion also announced raises this week

article-image

The latest recipient of an SEC Wells notice is a Web3 gaming company

article-image

Thursday’s selloff was led by tech stocks, triggered by disappointing outlooks from giants Meta and Microsoft

article-image

Historically, positive returns have been a bit more of a toss-up during the year’s 11th month