Decreased Bitcoin Activity and Liquidity Point to Imminent Volatility Spike

As the crypto market edges closer to the end of another week, recent data reveals a somber scene across the digital assets trading landscape.

Major crypto, including ether (ETH), bitcoin (BTC), and binance coin (BNB), have all taken a slight dip, suggesting an overall downturn in the market, research firm K33 wrote in a note on Tuesday.

Gordon Grant, Co-Head of Trading at Genesis Trading, expressed concerns about the lack of a macro catalyst for BTC and ETH, which have hindered a market recovery since the previous quarter.

“As implied volatilities stare down cyclical lows and majors look to have staved off another thwarted assault on trend support, similarly sloppy price action into Friday expiry could be in store if correlative risk assets find their feet,” Grant said.

The small fry in the crypto pool — fondly known as “small cap altcoins” — have taken a more substantial hit. Evidence points to investors swerving away from these riskier bets.

Dominance of blue-chip digital assets and their stablecoin counterparts, USDT and USDC, now make up a staggering 78.45% of the total market cap. The last time that figure was that high was in February 2021, hinting at a smaller appetite for riskier digital assets, K33 said.

Bitcoin, the industry’s bellwether, has managed to claw back some losses from last week’s 10% decline. BTC is flat at 0.3% over a 7-day period to $26,800, Blockworks Research data shows.

In a climate where excitement is the name of the game, it’s a little too quiet for comfort — volumes are on a downward trajectory, driving up bitcoin’s intraday volatility, crypto firm Kaiko wrote in a recent research note.

“The ongoing turmoil in US regional banks and the highly publicized debate on the US debt ceiling are negatively affecting risk sentiment,” the research firm said.

This cooling-off period in the crypto market comes as more market makers announce a scale-down of their bitcoin operations, causing a ripple effect of decreased liquidity. 

Last week, notable market makers Jane Street and Jump Crypto announced plans to lessen their US crypto exposure due to regulatory uncertainty within the country.

This transition has led to a redistribution of volumes from centralized exchanges to futures contracts traded on the Chicago Mercantile Exchange, indicating investors’ worries about the risks associated with centralized credit, Blockworks previously reported.

---

Get the news in your inbox. Explore Blockworks newsletters:

• Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
• Empire: Start your morning with the top news and analysis to inform your day in crypto.
• Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
• 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
• Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
• The Drop: For crypto collectors and traders, covering apps, games, memes and more.
• Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.