- Lower market cap cryptocurrencies experienced sharp increases overnight as investors returned to the market after last week's liquidation event.
- Trading volumes in crypto are showing no signs of recovery, however, and moves higher could be exacerbated by the low liquidity.
Happy Thursday!
Crypto markets recovered some of last week’s losses overnight. Altcoins had sharper increases than Bitcoin and Ethereum as investors appeared to favour lower market capitalisation cryptocurrencies. Spot trading volumes are on track for their worst month since October 2020.
Let’s dig in.
Low liquidity
Crypto markets recovered some of their losses after prices crashed last week, but volumes show no signs of recovering.
Bitcoin and Ethereum moved higher overnight, trading around $26,400 and $1,600 respectively. Investors appeared to favour altcoins, so-called lower-market value cryptocurrencies. Solana’s SOL was one of the biggest winners, adding over 4.4% to trade around $21.70.
The markets move higher comes just one week after prices crashed and traders saw long and short positions liquidated to the tune of $1 billion.
Spot trading volumes for August are just $325 billion, according to The Block Research data. Volumes have been consistently low since May when they reached multi-year lows. Volumes are on course to register their lowest month since October 2020.
The low liquidity environment at present might explain the sharp price moves.
During periods of low liquidity, markets are prone to sharp moves.
Crypto data firm Kaiko said Monday that despite being more stable, Bitcoin’s market depth is still 50% below its pre-FTX highs. As prices moved lower last Thursday, Bitcoin’s market depth plunged to 2,000 BTC from 5,000 BTC.
Market depth measures the number of orders within a price range waiting to be filled. Kaiko views depth as one of the most important gauges of liquidity. The research firm sums bids and asks within 2% of the mid-price to assess the depth of the Bitcoin market.
“Market depth has become much more concentrated, with the top five most liquid venues accounting for 77% share in Bitcoin and Ethereum market depth compared to 68% before the collapse of FTX,” Kaiko said, referring to the top crypto exchanges.
“This could exacerbate price moves during periods of market turmoil,” the report said.
On-chain the picture is much worse, Kaiko added. Since the beginning of June, almost $200 million has been removed from the 3pool and $800 million worth of tokens have been removed from the stETH-ETH pool.
Total value locked stood at $225 million and $340 million respectively on Monday, the pools have “vacated the top spot on Curve, now held by FRAX-USDC,” Kaiko noted.
Crypto market movers
- Bitcoin traded up nearly 2% to about $26,400 over the past day. Bitcoin volatility has also recovered from all-time lows. The 30-day estimate is currently 1.51% up from 0.64% a week ago, according to the Bitcoin Volatility Index.
- Ethereum added 1.6% to trade around $1,670.
- Altcoins had the lion’s share of the gains over the past 24 hours. Solana’s SOL added 4.4%, Cardano’s ADA was up 2.5%, and Binance-affiliated BNB gained 2%.
What we’re reading
- Coinbase-funded lawsuit against Tornado Cash sanctions was ‘nigh impossible to win’ – DL News.
- Curve founder’s bailout buyers almost underwater on 158m CRV purchase – DL News
Adam Morgan McCarthy is a London-based markets correspondent for DL News. To contact him with story tips, reach out at adam@dlnews.com.
