Bitcoin (BTC) is headed for its worst week since November with liquidity issues
Bitcoin faces a number of headwinds, including low liquidity that contributes to volatility. US regulators are also heavily scrutinizing the crypto industry.
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Bitcoin traded at its lowest level since mid-March on Friday as volatility, fueled by low liquidity, continued to hit cryptocurrency markets.
Bitcoin last traded 2% lower at $26,354.33, according to Coin Metrics. Earlier in the day, it fell as low as $26,138.19, its lowest level since March 17. The largest crypto asset by market capitalization was about to post a weekly loss of 10.6%, which would make it the worst week since November 11.
Ether also fell on Friday and was in the midst of a losing week.
There are a number of issues facing the crypto markets right now, including low liquidity, a crackdown on the industry from regulators in the US, and macroeconomic concerns.
Liquidity problems
Bitcoin is up around 59% this year, but prices have remained volatile, with low liquidity exacerbating moves higher and lower.
Clara Medalie, director of research at Kaiko, said there has been a “remarkable drop in market depth” for bitcoin.
Market depth refers to a market’s ability to absorb relatively large buy and sell orders. When market depth is shallow, relatively small orders can cause the price of an asset to move up or down significantly.
And the liquidity situation could worsen after Bloomberg reported that Jane Street and Jump Crypto, two of the biggest crypto market makers, will take a step back from crypto trading in the US as the country’s regulators continue to crack down on the nascent industry. .
“While it is still unclear the catalyst for today’s sharp drop, volatility is to be expected given the current liquidity, especially after major market makers Jane Street and Jump Crypto revealed that they were winding down their crypto exposure,” Medalie said.
Liquidity has been a major problem for crypto markets since the shutdown of Silvergate and Signature Bank – two key platforms that people used to buy into the crypto market.
Regulatory scrutiny, congestion issues
Scrutiny by US regulators of the digital currency industry has increased since the collapse of crypto exchange FTX last year.
The US Securities and Exchange Commission warned the US crypto exchange Coinbase in March of potential violations of securities law. Coinbase CEO Brian Armstrong said the company is preparing for a year-long legal battle with the SEC.
Meanwhile, the Commodity Futures and Trading Commission alleged in March that crypto exchange Binance violated trading rules.
The crypto industry is in a battle with US regulators, accusing the SEC and the US government of not laying out clear rules.
Meanwhile, the bitcoin network itself has faced congestion in recent days with Binance last week forced to temporarily halt bitcoin withdrawals. Bitcoin transaction fees increased this week, and while they are falling, they are still at high levels. The original bitcoin network was not designed to handle high volume transactions.
“Bitcoin’s attempt to break through $30,000 has been undone amid a triple whammy of blockchain congestion issues, liquidity constraints caused by the tapering of top market makers Jane Street and Jump Crypto, and ever-circling regulators,” Antoni Trenchev, co. -founder at Nexo, told CNBC via email on Friday.
– CNBC Tanaya Machel contributed to this report.
