Market participants know that the Bitcoin market has been illiquid over the last year. Market depth was already thin in November 2022, prior to the FTX implosion and the demise of Bankman-Fried’s trading firm, Alameda. The situation has worsened in the last few months due to the tightening US regulation. We saw a few major market makers winding back operations in the US, including Jump Crypto and Jane Street.

We can observe that 60% of the stablecoins have left exchanges in just over six months, amounting to $26 billion. The shallow volume was likely propped up artificially by zero-fee promotions on Binance, which is now facing charges of “targeted wash trading”.

Bitcoin has two qualities which make it ever-so-intriguing: a final supply of 21 million coins and a pre-determined schedule at which those coins are released. As of today, 92.4% of the Bitcoin supply has already been released. By pulling some on-chain data, we can see that 1.4 million coins have moved in the last month, equivalent to 7% of the circulating supply. The chart also shows that 7.5% of the total supply can be currently estimated as lost.

It’s clear that only a small portion of the supply is moving for Bitcoin. The shallow liquidity is a concern, however, there have been recent developments which provide hope that this may change. Blackrock and Fidelity have filed for a spot Bitcoin ETF, and EDX, backed by trad-fi giants, is launching. It’s possible that the tightening regulatory noose around Binance may help provide a clearer picture for the future of the space and give investors confidence.

In conclusion, uncertainty is high due to the macro climate and the tightening regulation. But, with institutions filing ETFs and launching exchanges, the liquidity picture may change drastically in the future.