Decreased Bitcoin Activity and Liquidity Point to Imminent Volatility Spike

Recent data shows a somber picture of the digital asset trading landscape as the crypto market nears the end of another busy week.

In a Tuesday note, Research firm K33 noted that major cryptos, such as ether ( ETH), Bitcoin ( BTC), binance coin ( BNB), all took a small dip. This suggests a general downturn in market conditions.

Gordon Grant, co-head of trading at Genesis Trading, expressed concern about the lack a macro catalyst, BTC and ETH have hindered a recovery of the market since the previous quarter.

Grant stated that ‘as implied volatility stares down cyclical bottoms and majors appear to have staved of another thwarted attack on trend support, similar sloppy pricing action could be in the offing for Friday expiry if correlative risks assets find their footing’.

Small cap altcoins, also known as the’small fry’ in the crypto pool, have suffered a greater loss. Investors are avoiding these more risky bets, according to evidence.

The dominance of stablecoins and blue-chip digital assets, USDT, and USDC now makes up an astounding 78.45%. This figure was last seen in February 2021. It suggests a reduced appetite for digital assets that are more risky, according to K33.

Bitcoin, the bellwether of the industry, has recovered some losses after last week’s 10% drop. Blockworks Research data show that BTC has been flat over the past seven days at 0.3% to $26,800.

Crypto firm Kaiko stated in a recent Research Note that the current climate is one of excitement, but it’s also a bit too quiet. Volumes are declining, which has increased bitcoin’s volatility intraday.

The research firm stated that ‘the ongoing turmoil in US Regional Banks and the highly-publicized debate about the US Debt Ceiling are negatively impacting risk sentiment’.

The crypto market is cooling off as more market-makers announce that they will be scaling down their bitcoin operations. This has caused a ripple of decreased liquidity.

Jane Street and Jump Crypto, two prominent market makers, announced last week that they would be reducing their US crypto exposure because of the regulatory uncertainty in the country.

Blockworks reported that this transition led to a redistribution in volumes between centralized exchanges and futures contracts traded at the Chicago Mercantile Exchange. This indicates investor’s concerns regarding the risks associated with centralized credits.