Bitcoin And Ethereum: Crypto Markets Face Liquidity Crunch - Proactive Investors UK
Bitcoin (BTC) has been on a downward trend over the weekend but has remained firmly within the 27.5k to 28.5k trading range favored by the BTC/USDT trading pair over the past few weeks.
Bullish ambitions to break out of the psychological 30,000 level appear to be on hold for now, with hopes of consolidation at the $28,000 price range instead. When writing, BTC/USDT traded at $27,900 after dropping about 2% overnight. Binance’s order book shows buy support at $27,000 and $26,500.
Key Takeaways
- Bitcoin (BTC) has been on a downward trend over the weekend.
- In the overnight riser, Layer 1 blockchain Solar’s SXP token topped the list with a 6% addition.
- The surge in the prices of Bitcoin and Ethereum has attracted a large number of new investors.
Cardano blockchain’s native cryptocurrency ADA (named after famed British mathematician Ada Lovelace) surged 5% Monday morning to become the best performer among the top 20 altcoin sets.
ADA’s market cap is now up about 14% week-over-week to reach $13.8 billion, potentially boosted by future upgrades in terms of Ethereum compatibility, and decentralized governance.
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In the overnight riser, Layer 1 blockchain Solar’s SXP token topped the list with a 6% addition, while altcoins entered the top 100 clubs at number 95.
The global cryptocurrency market cap fell 0.9% overnight to $1.17 trillion, while the total value of decentralized finance (DeFi) protocols fell 1.4% to $49.45 billion.
Liquidity refers to the ease with which buyers and sellers can trade an asset without affecting its price. In traditional financial markets, liquidity is maintained by large institutions that buy and sell assets in large volumes.
However, in the crypto markets, however, individual traders and investors trading on cryptocurrency exchanges often provide liquidity.
The surge in the prices of Bitcoin and Ethereum has attracted many new investors and traders to the crypto markets, increasing trading volume. At the same time, however, market liquidity has failed to keep up with the increase in trading activity.
This has created a situation where large orders for Bitcoin and Ethereum cannot be filled quickly enough, resulting in a wider bid-ask spread and increased market volatility. Large market orders can cause a sudden spike in the price of a cryptocurrency, making it difficult for traders to execute their orders at the desired price.
One of the leading causes of the liquidity crunch is the need for market makers in the crypto markets. Market makers are specialized firms that provide liquidity to financial markets by buying, and selling assets continuously.
In the crypto markets, however, the number of market makers is limited, which makes it challenging to maintain liquidity during periods of high trading activity.
The liquidity crunch has been particularly acute in the Ethereum market. Ethereum is the primary currency for many decentralized finances (DeFi) applications, which have seen explosive growth over the past year. The increased demand for Ethereum has led to a shortage of available exchange coins, exacerbating liquidity problems.
The liquidity crunch in the crypto markets is a serious problem that is affecting the ability of traders and investors to execute their orders at desired prices. While some potential solutions are being considered, such as the introduction of stablecoins and the attraction of more market makers, it remains to be seen whether these measures will successfully address the liquidity problem in the long term.