Crypto markets might appear calmer after the disappearance of leverage in October, but beneath the surface, liquidity remains absent.
Data from CoinDesk Research shows that order book depth on major centralized exchanges remains structurally lower, suggesting a more cautious market-making environment heading into the end of the year.
This environment paves the way for tighter markets and sharper moves, increasing the likelihood that routine trade flows will produce outsized price swings.
Disappearing liquidity
October’s liquidation cascade wiped out billions in open interest in a matter of hours, but it also triggered something subtler and much more persistent: an exodus of remaining liquidity from centralized exchanges.
The damage is most evident in the two assets that anchor the entire market. In early October, just before the demise, bitcoin’s average cumulative depth at 1% of the median price was around $20 million across major venues, according to data from CoinDesk Research.
By Nov. 11, that same measure had fallen to $14 million, a decline of nearly a third, the data showed.
Market depth is a metric used by traders to assess the scale of liquidity in a market. On a 1% range, this assesses how much capital it would take to move the market by 1%, taking into account the cumulative value of all limit orders in the book.
A thin portfolio could deter traders looking to buy or sell greater volume, as it would very often cause slippage, which is when the price deviates to an area where liquidity is sufficient.
The 0.5% depth from the median price fell from around $15.5 million to just under $10 million, while the depth in the broader 5% range fell from over $40 million to just under $30 million.
Ether shows an almost parallel pattern. On October 9, ETH’s depth at 1% from the median price was just above $8 million, but by early November it had retreated to just under $6 million.
There was also a significant reduction in depth between 0.5% and 5%, creating a completely new market structure.
According to CoinDesk Research, this lack of recovery of BTC and ETH liquidity is not a coincidence of the moment but a structural change.
The analysts concluded that both assets suffered a significant drop in their average depth that was not resolved, “suggesting a deliberate reduction in market-making commitment and the emergence of a new, lower base for stable liquidity on centralized exchanges.”
This not only has an impact for directional traders with a long or short bias, but also for delta neutral companies and volatility traders. Delta-neutral companies rely on strategies such as obtaining an arbitrage spread on financing rates; However, lack of liquidity means it will have to be downsized, which could reduce profits.
Volatility trading can have mixed results, as lack of liquidity can ultimately lead to violent swings. This is ideal for those who trade a combination of options, which involves purchasing a call and put option with the same expiration and strike price, as wide price movements in either direction will result in profits.
Altcoins recover from panic, but not to previous strength
The contrast of the liquidity crisis between BTC and ETH versus major altcoins is stark.
A basket composed of SOL, However, this group experienced a rapid technical recovery, with market makers quickly restoring orders as volatility receded.
However, that rally did not restore liquidity to its early October levels. Depth within the 1% band remains approximately $1 million below where it was before destruction, and depth in broader bands shows the same pattern of partial repair without full restoration.
CoinDesk Research believes this divergence reflects two fundamentally different liquidity regimes: altcoins experienced a knee-jerk collapse that forced market makers to aggressively re-enter once the market stabilized, while BTC and ETH endured a slower, more purposeful withdrawal of liquidity as participants reassessed risk.
“The altcoin collapse was a temporary panic-driven event that required a rapid restoration of order,” the analysts noted, adding that larger assets “suffered from more deliberate and long-lasting risk-averse positioning.”
The pattern – a violent drop, a quick rebound and a lower plateau – suggests that altcoins were surprised, while bitcoin and ether were revalued in terms of market maker commitment.
macro is not a friend
If liquidity providers were already hesitant after the October dislocation, the macro climate has given them little reason to take risks again.
CoinShares data showed $360 million in net outflows from digital asset investment products during the week ending Nov. 1, including nearly $1 billion withdrawn from bitcoin ETFs, one of the largest weekly outflows of the year.
The United States accounted for more than $430 million of these outflows, reflecting the sensitivity of US institutional flows to the Federal Reserve’s changing communication on interest rates.
Market makers tend to reduce inventory, widen spreads, and limit posted size when macroeconomic uncertainty clouds directional conviction. The persistence of ETF outflows, ambiguity around December rate policy and the general lack of strong fundamental catalysts have contributed to a cautious stance.
What does all this mean?
The practical consequence of this reduced depth is that crypto markets are more fragile than the price charts imply.
In short: very sharp movements are coming for traders.
Much less capital is now needed to move spot markets in either direction. Large fund operations, arbitrage desks or ETF brokers can create a disproportionate impact, while even routine macroeconomic releases, such as an unexpectedly strong CPI print, a change in Fed comments or new ETF outflows, risk producing exaggerated price reactions.
Lower liquidity also leaves the system more vulnerable to cascades of liquidations. If open interest recovers quickly, as it often does during calm periods, the absence of a dense order book increases the chances that relatively small shocks could trigger another wave of forced selling.
In a more benign scenario, low liquidity can also amplify bullish movements. If risk appetite returns abruptly, the same lack of resting liquidity could fuel outsized rallies.
A fragile market ahead
What is clear from the data is that the October sell-off did more than unwind overleveraged positions. It reshaped the structure of the cryptocurrency market in a way that has not yet been developed.
Bitcoin and Ethereum remain trapped in a new, tighter liquidity regime. Altcoins, although recovering faster, are still far from the levels they characterized at the beginning of October.
As the year draws to a close, cryptocurrencies now find themselves in a much more fragile position than they were at the beginning of October.
It remains to be seen whether this liquidity gap becomes a brief chapter or a defining feature of the market’s next phase, but for now, that hole remains and the market continues to find a way to fix it. – with great caution.
