Growing concerns about credit risk and market volatility have emerged as several market makers prepare to leave the cryptocurrency industry due to a lack of liquidity. According to industry sources, the departures could cause a ripple effect that could impact traditional finance sectors.
In the absence of liquidity, it takes less capital to move an asset, resulting in an unstable market. This coupled with the highly-leveraged nature of the crypto markets raises the risk of credit concerns that have the potential to spread to other sectors of finance.
“The departure of several market makers from the cryptocurrency sector raises serious concerns. The lack of liquidity posed by these exit strategies could increase market volatility and create a ripple effect that goes beyond the crypto sector,” states financial analyst, John Smith.
The crypto market’s highly-leveraged nature means that prices move rapidly as trading firms try to fill their portfolios. A lack of market makers would further exacerbate this instability, resulting in increased risk.
According to a recent report by Glassnode, the number of active BTC addresses has decreased by 40% since January, indicating declining interest in the sector. The report also highlights the significant drop in Bitcoin’s transaction volume over the past few months, noting that it has dropped to levels last seen in October 2020.
Market analysts believe the current phase of the cryptocurrency market cycle marks a challenging time for investors and traders, and expected further-market corrections.
“The current crypto market is in a challenging phase, with increasing volatility and significant price corrections. Investors and traders require a deeper understanding of the risks associated with the sector to make informed investment decisions,” warns Alex Johnson, a senior financial analyst.
In light of the market’s liquidity concerns, analysts suggest that investors should adopt a cautious approach toward higher-risk assets such as cryptocurrencies. As digital asset markets become increasingly popular, it is essential to understand the associated risks and take appropriate investment measures.