Crypto asset trading relies heavily on the fiat market for liquidity to facilitate smooth entry and exit services.
However, recent market updates reveal a struggling industry facing liquidity problems. In a shocking turn of events, Hotbit, a leading centralized exchange, went out of business, giving its more than 5 million customers just one month to withdraw their capital.
Decrease in liquidity in the main crypto assets
According to a recent report by @CryptoVizArt, a senior researcher at Glassnode, liquidity has noticeably decreased across the top four digital assets: Bitcoin, Ethereum, USDT, and USDC. On-chain data highlights a continued decline in liquidity since the Terra Luna collapse, further exacerbated by the FTX collapse late last year.
Worsening liquidity concerns
An interesting observation is that the exchange activity of the main digital assets, including Bitcoin, Ethereum, USDT and USDC, have reached negative levels compared to the annual data. Consequently, the analyst predicts a potentially dire situation in the cryptocurrency industry if liquidity issues are not addressed immediately.
Regulatory crackdown in the United States has significantly influenced numerous crypto market makers to scale back their operations, exacerbating the liquidity crisis. In recent developments, two well-known market maker firms, Jane Street Group and Jump Crypto, have announced the closure of their crypto operations due to regulatory uncertainty, particularly in the United States.
Pathetic condition of US exchanges
Kaiko's market data reveals that US stocks have experienced a 50% decline in liquidity this year. In particular, the liquidity shortage in the crypto market intensified following the crash of crypto-friendly banks in the United States earlier this year.
