- According to the latest report from Glassnode, the digital asset market is experiencing a major liquidity crunch, with both on-chain and off-chain transactions seeing historical declines.
- Bitcoin and Ethereum have seen net capital inflows since the year began, but both assets have returned to neutral or negative capital flows since late August.
- After a short period of volatility, Glassnode’s on-chain metrics show that the total USD volume of Bitcoin transactions is averaging $2.44 billion per day.
The liquidity crunch seen in Bitcoin and crypto markets is reminiscent of pre-bull market levels of 2020; Could this be a signal for a rise?
Glassnode Reveals Liquidity Crunch
According to the latest report from crypto market intelligence firm Glassnode, the digital asset market is experiencing a major liquidity crunch, with both on-chain and off-chain transactions seeing historical declines.
This liquidity drop, with the market returning to a relatively narrow trading range, is reminiscent of pre-bull market levels of 2020, according to a Glassnode analyst. The analyst said, “extreme indifference and distress are the best descriptors of the prevailing sentiment.”
Stablecoins have seen a continuous supply decline since April 2022, and Glassnode has attributed this to a variety of factors, including the collapse of the Terra ecosystem and the failure of high interest rates to be passed on to non-yield-bearing stablecoins.
Bitcoin and Ethereum have seen net capital inflows since the year began, but both assets have returned to neutral or negative capital flows since late August, signaling stagnation and uncertainty.
Among major stablecoins, Tether’s (USDT) supply has increased by $13.3 billion since November lows. However, USDC and BUSD have seen major declines – falling by $16.7 billion and $20.4 billion, respectively.
Glassnode noted that the USDC decline is likely a reflection of US institutions moving capital to higher interest rate markets, while the BUSD decline may be due to issuer Paxos’s halting of production due to sanctions from the US Securities and Exchange Commission. As a result, Tether’s dominance in the stablecoin market has risen to 69%, up significantly from 44% in June 2022.
Quiet times on-chain and off-chain
After a short period of volatility, Glassnode’s on-chain metrics show that the total USD volume of Bitcoin transactions is averaging $2.44 billion per day. This, according to the analyst, reflects October 2020 levels, when the market was generally locking in profits or losses.
In the off-chain derivatives market, Bitcoin daily trading volume has also fallen to a historical low, dropping to $12 billion for the first time since 2022 lows.
However, Glassnode noted that there are some divergences in the Bitcoin options market, with trading volume increasing significantly, but still several times smaller in magnitude than futures. The analyst said, “this may reflect the market’s preference for using options’ leverage and capital efficiency to express views in a period of tighter overall liquidity conditions.”
Hodl trend continues
According to Glassnode’s report, the “hodl” trend remains strong despite the market’s stagnant state. The long-term holders group, which Glassnode defines as on-chain assets held by investors for more than 155 days, has reached an all-time high of 14.7 million BTC. Meanwhile, short-term holder supply – those who have held for less than 155 days – has fallen to its lowest level since 2011.
According to Glassnode, profitability is slowly increasing for long-term holders, but 26.7% of this supply is currently in the red. However, below the $26,000 level, almost all of the short-term holders’ positions are in the red, which may suggest that a more price-sensitive cohort is feeling a bit stressed, the analyst said.
Bitcoin is currently trading at $26,125. Bitcoin, the largest asset in the crypto market, has fallen by about 5% since late August, when the industry experienced a historically bad month.
