TBW - Market analysis: collapsing liquidity makes the market explosive
The crypto-asset market this Sunday offered a glimpse of what the coming end-of-year weeks could be like: erratic and violent. In an environment of low liquidity, Bitcoin swung wildly between $88,000 and $92,000, while Ethereum made a jump from $2,910 to $3,150.
For analysts at QCP Group, this volatility is not insignificant. "It reveals a structural fragility in the order book as the annual close approaches, but above all signals a growing divergence between the apathy of the general public and smart money activity," says the Singapore-based investment firm.
Why volatility is exploding
Contrary to appearances, this spike in volatility is not being supported by massive volumes. Liquidations of positions (long and short) totalled around $440 million, a relatively modest figure by 2025 standards.
This paradox can be explained by the shallowness of the market. The general public's interest in cryptocurrencies, as measured by Google searches and speculator activity, has fallen back to bear market levels. As a result, positions in perpetual futures contracts (Open Interest) have collapsed (-44% on Bitcoin since the October peak, -50% on Ethereum).
The analysis: with fewer players and smaller order books, much less capital is now needed to cause significant price movements. The market has become more sensitive to minor flows.
Institutional investors are quietly accumulating
While the surface of the market appears deserted, the on-chain fundamentals tell a different story, one of a scarcity of available supply.
While retail investors are jumping ship, institutional investors are accumulating. Data shows that 25,000 BTC have been withdrawn from centralised exchange platforms in the past two weeks, according to Coinglass.
A major shift has just taken place: Bitcoin ETFs and corporate treasuries now collectively hold more bitcoins than exchange platforms.
This is a structural change in supply, migrating from immediate availability (on exchanges) to long-term storage (cold storage/custody). Ethereum is following a similar trajectory, with balances on exchanges at their lowest for a decade.
For asset managers, the reading is clear: institutional investors are taking advantage of dips to accumulate without chasing the price upwards, thereby tightening the available float.
To watch on Wednesday: the Fed's monetary policy
In the short term, the catalyst remains macroeconomic. This Wednesday's Federal Reserve meeting is crucial. While a 25 basis point rate cut has already been priced in by the market, the focus will be on the Fed's balance sheet management.
Any signal indicating a change in liquidity strategy (quantitative easing in disguise, for example) could act as a spark on risky assets such as equities and cryptos
