According to a recent analysis from Bitfinex, the liquidity crunch in the crypto industry could result in event-based volatility having a greater impact on prices. In August, capital outflows in the crypto industry reached $55 billion, affecting not only Bitcoin but also Ether and stablecoin liquidity. The analysis also highlights the return of event-based volatility, where isolated events can significantly impact market movements. Two events in August, a flash crash and Grayscale’s legal victory, had a notable effect on Bitcoin prices. The analysis suggests that the low liquidity in the market allows these isolated events to have a larger impact. Additionally, the analysis notes that Bitcoin open interest has outperformed the crypto markets due to increased institutional interest and wash trading on some exchanges. On the other hand, Ether futures and options have declined significantly in 2023 compared to previous years. The analysis concludes that the patterns of low liquidity seen in the derivatives market mirror the overall market conditions.
