Bitcoin News Update: Is the Recent Decline in Crypto Liquidity a Short-Term Hurdle or a Permanent Change in Market Structure?

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Bitget-RWA2025/11/20 22:44

By:Bitget-RWA

- October 2025 crypto crash reduced Bitcoin/ETH order-book depth by 30-25%, signaling structural liquidity withdrawal by market makers. - Stablecoin sector lost $840M since Nov 15, compounding fragility as weak volumes amplify price swings from routine trades. - Macro factors like ETF outflows ($360M weekly), Fed policy shifts, and Trump's tariff removal deepen liquidity challenges. - Thinner liquidity regime increases volatility risks for delta-neutral strategies, with even minor macro events triggering s

The cryptocurrency market crash in October 2025, which wiped out billions in open interest and sparked a mass withdrawal of liquidity, continues to weigh heavily on digital asset trading.

As reported by CoinDesk Research

, the order-book depth for

Bitcoin

(BTC) and

Ether

(ETH) remains significantly below pre-crash levels, indicating that market makers are still hesitant to return. This reduced liquidity has left the market more vulnerable, increasing the likelihood of dramatic price movements during normal trading or unexpected economic events.

In early October, Bitcoin’s average order-book depth at 1% from the mid-price was $20 million, but by mid-November, it had fallen to $14 million. Meanwhile,

ETH’s depth in the same range declined from $8 million to $6 million

. Analysts pointed out that this trend shows a "purposeful scaling back of market-making activity," setting a new standard for liquidity on centralized platforms. Alternative coins such as

Solana

(SOL),

XRP

, and ATOM rebounded more quickly after the panic but are still well below their pre-October liquidity, with

significant liquidity shortages persisting at key price levels

Bitcoin News Update: Is the Recent Decline in Crypto Liquidity a Short-Term Hurdle or a Permanent Change in Market Structure? image 0

Adding to the problem is a broad reduction in stablecoin supply, which has further undermined the market’s ability to absorb shocks. Since November 15, the stablecoin market has contracted by about $840 million,

with tokens such as Ethena’s USDe and csUSDL suffering sharp drops

. With fewer stablecoins available and trading activity subdued, even small sell-offs can now lead to disproportionately large price changes.

Broader economic factors have also contributed to the liquidity crunch.

Outflows from ETFs, changing expectations for Federal Reserve policy

, and a lack of strong underlying drivers have made market makers more cautious.

Data from CoinShares revealed $360 million in net outflows

from digital asset investment products in the week ending November 1, including nearly $1 billion withdrawn from bitcoin ETFs. At the same time, Trump’s trade decisions,

such as the recent directive to lift tariffs

, and

updated deficit projections from the CBO

, highlight the ongoing economic uncertainty.

The impact of diminished liquidity is extensive.

Delta-neutral and volatility trading strategies now encounter greater risks

, as slippage and exaggerated price fluctuations become more frequent. For instance, an unexpected macroeconomic announcement—like a higher-than-anticipated CPI—could spark sharp corrections. On the other hand, a sudden surge in risk appetite could drive rapid rallies, as the lack of liquidity intensifies upward moves as well.

With the end of the year approaching, the market remains on unstable ground. Although some altcoins have shown relative strength, Bitcoin and Ether are still operating in what analysts call a “thinner liquidity regime,”

according to CoinDesk Research

. Whether this represents a short-term adjustment or a lasting change for the crypto sector is still unclear, but for now, traders must contend with a market where even routine trades can carry outsized risks.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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