Bitcoin Market Weakens as Liquidity, Derivatives Activity Slow

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The cryptocurrency market, led by Bitcoin, has shown signs of weakening structural strength since a sharp selloff in October last year.

Cointelegraph reported on April 11 that market liquidity and derivatives indicators have broadly softened since the plunge. The selloff led to the liquidation of about $19 billion in leveraged futures positions, amplifying the market shock.

Order-book depth, a key measure of market liquidity, has fallen sharply. Bitcoin order-book depth held at about $180 million to $260 million through September last year, but continued to decline after the selloff and now stands at around $130 million.

That represents a drop of about 50%.

The liquidity slowdown became more severe this year. In February, order-book depth remained below $60 million for about 10 days, highlighting the market’s vulnerability. During the same period, Bitcoin struggled to defend support at $65,000.

The derivatives market has also shrunk. Over the past 30 days, crypto derivatives trading volume ranged from $40 billion to $130 billion, down sharply from about $200 billion in September last year. Long and short positions remained balanced, indicating that conviction on market direction stayed weak.

Funding rates for Bitcoin perpetual futures also reflected softer investor sentiment. Funding rates, which typically stayed in a 6% to 12% range, fell sharply after February this year, signaling weaker demand for leverage.

By contrast, trading in spot exchange-traded funds, a proxy for institutional demand, remained relatively resilient. Average daily trading volume for U.S. spot Bitcoin ETFs reached $11.5 billion in November last year, the highest in 20 months, and stayed above $4 billion from January through March this year. In April, however, it fell below $3.3 billion, pointing to a slowdown. Average daily volume for spot Ether ETFs was also about $1 billion, roughly half the $2 billion recorded in September last year.

Taken together, key indicators including order-book depth, derivatives trading, funding rates and ETF trading volume have weakened from six months ago, Cointelegraph reported. Still, market structure itself has remained relatively stable since the selloff, suggesting the plunge’s long-term impact has been limited.