Crypto Liquidity Remains Depressed Despite Post-October Calm, Leaving Markets Prone to Volatility
Crypto prices may have stabilized following October’s severe leverage reset, but the underlying liquidity picture tells a different story. Market depth for bitcoin and ether across the largest centralized exchanges remains markedly thinner than before the crash, creating a more fragile trading backdrop heading into year-end.
New data from CoinDesk Research shows that order books have not replenished, suggesting that market makers are still operating cautiously. With liquidity lower across tight and wide depth bands, even ordinary trading flows now have a greater chance of triggering oversized moves.
Lingering Damage From October’s Liquidation Wave
The rapid unwinding of leverage in October wiped out billions of dollars in open interest within hours. But the longer-lasting consequence has been the retreat of market makers and the disappearance of resting orders from exchanges.
Before the collapse, bitcoin’s average depth at 1% from the mid-price was near $20 million. By Nov. 11, it had slipped to around $14 million — a drop of nearly one-third. Depth within 0.5% fell from roughly $15.5 million to below $10 million, and depth within 5% fell from over $40 million to under $30 million.
Ether’s liquidity mirrored that decline. On Oct. 9, ETH depth at 1% was just above $8 million; by early November it had fallen below $6 million. Depth deteriorated at both tighter and wider ranges, pointing to a market structure that has not recovered.
CoinDesk Research concluded that this weakness is not temporary. Analysts say BTC and ETH liquidity has settled into a persistently lower baseline, reflecting a deliberate reduction in market-making activity rather than a short-lived reaction.
This poses challenges not only for directional traders, but also for delta-neutral firms whose strategies rely on tight execution. Lower liquidity forces them to reduce trade size, compressing returns. Volatility traders, meanwhile, may benefit from the wider swings that thinner markets enable — though execution becomes more erratic.
Altcoins Bounce Back More Quickly but Still Trail Early-October Levels
Altcoins experienced an even more dramatic liquidity collapse during the October sell-off. A basket of major names — SOL, XRP, ATOM and ENS — saw depth at 1% plunge from roughly $2.5 million to about $1.3 million in a matter of hours.
Unlike BTC and ETH, altcoins saw a swift recovery as market makers reloaded orders once volatility eased. But this rebound still fell short of restoring pre-crash liquidity. Depth in the 1% band remains around $1 million below where it stood before the wipeout.
Researchers attribute this split to two distinct liquidity behaviors:
- Altcoins suffered a panic-driven collapse followed by aggressive replenishment, while
- Bitcoin and ether underwent a slower, more intentional withdrawal as participants reassessed risk.
The result is a pattern of steep drop, sharp bounce, and a new, lower plateau — suggesting altcoins were shocked, while BTC and ETH were re-priced in terms of liquidity commitment.
Macro Headwinds Are Keeping Market Makers on the Sidelines
The broader macro backdrop has given liquidity providers little reason to re-engage. CoinShares reported $360 million in weekly outflows from digital asset investment products as of Nov. 1, including almost $1 billion of withdrawals from bitcoin ETFs — one of the largest weekly outflows this year.
U.S. investors accounted for more than $430 million of these withdrawals, underscoring the sensitivity of institutional flows to shifts in Federal Reserve policy expectations.
In periods of macro uncertainty, market makers typically reduce exposure by widening spreads, lowering inventory, and posting smaller order sizes. Ongoing ETF outflows, ambiguity over December rate policy, and a lack of strong fundamental catalysts have reinforced this defensive stance.
Thin Liquidity Means Markets Are Vulnerable to Sharp Moves
The practical effect of this liquidity decline is straightforward: it now takes far less capital to move prices. Large flows from arbitrage desks, funds, or ETF intermediaries can produce disproportionate swings. Even routine macro events — such as an unexpected inflation reading or hawkish Fed communication — could trigger exaggerated reactions.
The market is also more vulnerable to liquidation cascades. If open interest rebuilds quickly — as often happens during quieter stretches — the absence of a thick order book increases the risk that a relatively small shock could trigger another chain of forced selling.
On the upside, thin liquidity can also accelerate rallies if risk appetite returns suddenly.
A Market Still Defined by Fragile Liquidity
Overall, the October collapse reshaped the market’s liquidity structure in ways that have not yet reversed. Bitcoin and ether remain in a thinner liquidity regime, and while altcoins have recovered faster, they too remain below early-October depth levels.
With the year drawing to a close, the crypto market is structurally weaker than it was before the October dislocation. Whether liquidity normalizes in the coming months or this becomes a lasting feature of the market’s next phase is still unclear — but for now, the void remains, and traders are navigating it with heightened caution.
