These hurdles consist of a worrying decrease in trading volume, concerning liquidity problems, and a significant rise in selling pressure.
1. Trading Volume Plummets
The crypto market’s first quarter of 2021 saw high trading momentum and expectations. However, a disturbing decline in trading volume across all major centralized exchanges has been observed since.
May’s aggregated daily trading volumes have shrunk from $23 billion to $9 billion, signaling a diminishing speculative interest and growing apathy toward the crypto market.
Analyst Will Clemente suggests that lack of speculative interest from the masses presents an opportunity for those with a strong belief.
Binance has experienced a slump in trading volume, and its market share has plunged to 56%, a stark 15% drop from its peak in the second half of 2022. Contrarily, this decline has favored exchanges in other categories, such as Huobi, Kraken, and Kucoin. With the regulatory landscape in the United States remaining uncertain, offshore exchanges maintain their dominance in the crypto trading ecosystem, making up 86% of the entire trading volume.
2. Crypto Liquidity Crisis
The second major issue casting a shadow over the crypto market is a liquidity crisis, particularly for Bitcoin and Ethereum.
Coin-denominated 2% market depth, which measures the depth of bids and asks within 2% of the current trading price, has remained flat, indicating increasing indifference towards the market.
This liquidity decline has led to market makers Jane Street and Jump Crypto scaling back their crypto operations in the US due to regulatory uncertainties. Reduced liquidity can hinder the ability of market participants to execute larger trades without incurring price impact, also known as slippage.
This process could create a downward price spiral, leading to lower prices and possibly triggering a sell-off. Liquidity is a critical aspect of any financial market, including crypto, and high liquidity levels create a more secure and efficient market.
3. Surging Selling Pressure
The surge in selling pressure as Bitcoin dropped below $27,000 is the third problem presented in June 2023.
Concerns around liquidity have been amplified in the wake of legislative actions in the US, with the recent approval of a deal to suspend the $31.5 trillion debt ceiling. This could result in the issuance of up to $1 trillion in US Treasury bills, posing additional pressure on Bitcoin.
Antoni Trenchev, managing partner of crypto lender Nexo, raised an interesting point, stating that the market faces a flood of treasury bill issuance, which will likely draw liquidity away from risk assets like Bitcoin.
Trenchev suggests that Bitcoin must stay above the 200-week moving average around $26,300 to keep the bullish uptrend from the November low of $15,500 intact.
On the upside, getting above $31,000 could lead to more interesting developments.
Despite the recent spike in selling pressure, similar to previous sell-offs, Maartunn, Community Manager at CryptoQuant, believes it may peak soon and revert.