Crypto Market Faces Hidden Liquidity Risk amid 50% Volume Drop
Matrixport reports a growing cryptocurrency liquidity risk as market capitalization climbs from $2.4 trillion to $3.7 trillion over the past year while average daily trading volume plunged 50%, from $352 billion to $178 billion. This divergence highlights weaker market participation, declining momentum and structural caution. The widening gap underscores a deepening cryptocurrency liquidity risk that could amplify market volatility. On-chain signals suggest Bitcoin (BTC) may have entered a phase bear market, with short-term catalysts likely insufficient to sustain a robust rally. Reduced liquidity pressures crypto exchanges, weighing on trading activity and fee revenue. Traders should monitor volume trends and on-chain indicators closely to assess market stability and anticipate potential bearish shifts amid ongoing liquidity risk.
Bearish
The 50% drop in trading volume despite a 54% market cap increase indicates waning participation and momentum, a classic bearish signal. Historically, similar divergences preceded major corrections, such as mid-2021’s sharp volume decline before the summer sell-off and early 2022’s liquidity crunch. Low on-chain activity and pressure on exchange fee revenue point to constrained liquidity, limiting upside potential. In the short term, traders may face increased volatility and downward bias as liquidity risk heightens. Long term, a sustained recovery in volume and on-chain engagement is needed to confirm renewed bullish momentum; otherwise, the market could linger in a bearish phase.