Declining liquidity on Altcoins, the crypto market in crisis?

Glassnode, the crypto analytics firm has suggested a decrease in liquidity in the altcoin market. This situation would be linked to a drop in appetite for cryptos. The company particularly highlights a weakness in the market given the fundamental parameters of crypto altcoins, which are at critically low levels.

Investors are less interested in cryptos

According to Glassnode’s analysis, we notice that liquidity in the altcoin market has decreased. Long-term investors continue to increase their supply and reduce liquidity by limiting active trading. This reflects the low liquidity environment in the market. Indeed, such a situation indicates a low risk appetite for the new altcoin framework. It also highlights the current shortage of liquidity in crypto.

Glassnode on Twitter

As exchange interaction remains at cyclically low levels, liquidity continues to dry up in cryptos. This underlines the current acute indifference of the market, explains Glassnode. Although hodlers increase their supply to new heights, increasing their numbers restricts the tradable supply. This therefore leads to a tightening of active trade.

This new framework for altcoins simulates the cascading effect of capital turnover, despite the high volatility in altcoin valuation. Glassnode therefore concludes that the risk-taking regime is not in effect, indicating the current liquidity shortage.

A bear market similar to the previous ones?

Bitcoin: Hot Supply – source: Glassnode

Glassnode also relied on the Bitcoin hot supply metric, that is to say the volume of crypto exchanged last week. This has reached its lowest levels seen in bear markets for the liquidity of crypto BTC. Glassnode said this liquidity stagnation is particularly evident when evaluating the hot supply metric.

It compares hot supply to the long-term average of BTC crypto supply with a standard deviation of minus 0.5. It creates a framework showing periods of low liquidity and market contraction when hot supply is below this level. This indicates that the Current liquidity conditions are similar to the bear markets of 2014-2015 and 2018-2019.

Bitcoin Daily Chart – TradingView

Meanwhile, Bitcoin continues to show volatility in the area between $26,000 and $28,000. In addition, the price of this crypto failed to cross the bearish oblique resistance which formed from the yearly high at $31,800. At the time of writing, the price of Bitcoin is currently $26,800 and could show further decline.

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