Crypto Markets: Why Big Moves Are Here to Stay

Crypto trading has undergone significant changes since October. The major crash during that month not only wiped out billions in trades but also drastically thinned the market. Now, it takes less money to move prices up or down, leading to more significant price swings.

Bitcoin and Ethereum: Liquidity Drops

Bitcoin and Ethereum, the two largest cryptocurrencies, have experienced a substantial decrease in liquidity. Liquidity is akin to the water in a river—more water ensures smooth flow, while less water creates choppy conditions. Currently, the river is very shallow.

• Bitcoin: In early October, approximately $20 million was required to move Bitcoin's price by 1%. Now, it takes less than $14 million.
• Ethereum: A similar drop in liquidity has been observed.

This shift is not temporary but a significant change in market dynamics.

Altcoins: A Mixed Recovery

Altcoins, or smaller cryptocurrencies, also saw a sharp decline in liquidity during the crash. However, they rebounded faster than Bitcoin and Ethereum. Despite this, they have not yet returned to their pre-crash levels, indicating the market is still adjusting to new risk levels.

Economic Uncertainty and Market Fragility

The broader economic uncertainty has made market makers more cautious. They are not injecting as much capital into the market as before, which increases its fragility. Even minor events can now trigger significant price swings.

The New Phase of Crypto Trading

The crypto market has entered a new phase characterized by increased fragility and volatility. Expect big moves to be the norm, at least for the foreseeable future. Whether this trend will change in the future remains uncertain. For now, traders must prepare for a bumpy ride.