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The digital asset market is experiencing a severe liquidity drought.
Bitcoin and major altcoins show stagnant growth and declining volumes.
Long-term holders stand firm, but short-term traders face potential significant losses.
As Bitcoin hovers around $26,000, Glassnode’s analysis points to dwindling liquidity in the digital asset market, with potential implications for traders and investors alike.
Market Dries Up: A Return to Pre-Bull Levels
The market-realized value net capital change breakdown. TheSource : Glassnode.
The digital asset market’s liquidity crunch is increasingly evident as both on-chain and off-chain volumes dive to record lows. This current scenario is reminiscent of the 2020 pre-bullish period, with prevailing sentiments being described as “extreme apathy and boredom.”
While the overall stablecoin supply has been dwindling since April 2022, Bitcoin and ether have seen mixed inflows. Factors such as the Terra ecosystem’s collapse and non-yielding stablecoins’ higher interest rates have played a role. In the race for dominance, Tether’s USDT surged to 69% from a mere 44% in June 2022, overshadowing USDC and BUSD’s steep declines.
October 2020 seems to be mirroring the present, with on-chain Bitcoin transactions averaging a daily volume of just $2.44 billion. The off-chain derivatives market isn’t faring much better, with Bitcoin’s daily trading volume sinking to a meager $12 billion. An anomaly, however, arises in the bitcoin options market where volumes have seen a notable increase, signaling a market preference amidst tighter liquidity.
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Even in subdued market conditions, the trend to “hodl” remains robust. Glassnode’s data indicates that long-term holders, classified as those who’ve held coins for over 155 days, are at an all-time high. In stark contrast, the short-term holder supply has shrunk, reaching its smallest size since 2011. With Bitcoin’s price teetering at $26,110, a significant portion of these holders face being in the red.
Bitcoin’s Performance: A September Slump
BTC/USD price chart. TheSource : CoinGecko.
According to CoinGecko data, Bitcoin, the foremost crypto asset by market cap, has slumped by approximately 5% since the month’s onset. This decline further accentuates September’s reputation as a challenging month for the cryptocurrency domain.
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Conclusion
The digital asset market, especially Bitcoin, finds itself in choppy waters as liquidity dwindles and volumes drop. Both on-chain and off-chain metrics signal a market slowdown, reminiscent of pre-bull 2020 conditions. Despite this, the spirit of “hodling” seems unshaken among long-term investors. As we move forward, market participants would be keenly observing any signs of recovery or further descent into this liquidity abyss.
