Digital asset market liquidity hits lowest level since 2020, report says

• The current cycle has experienced a significant decline in volatility and trading volume.
• Despite this, long-term holders of Bitcoin continued to increase their accumulation.

With the current market cycle marked by compressed volatility and low trading volume, the total value of on-chain and off-chain transactions in the digital asset market has fallen to its lowest level since 2020, on-chain analytics firm Glassnode

The on-chain data provider assessed the performance of leading stablecoins, Bitcoin [BTC], and Ethereum [ETH], since the beginning of the year. It noted that after a period of significant net inflow of capital when the year started, the past few months have “seen a return to neutral or negative inflows, suggesting a degree of stagnation and uncertainty has taken over.”

According to Glassnode:

“All in all, it can be argued that extreme apathy and boredom best describe the prevailing sentiment.”

Through it all, USDT remains king

The supply of stablecoins has steadily declined since April 2022.  The fears of a contagion effect following the unexpected collapse of LUNA-UST in May of the same year led many stablecoin holders to redeem their assets. 

This increased coin redemption has resulted in a 26% decline in aggregate stablecoin supply, Glassnode found. Since April 2022, this has fallen from $163 billion to $120 billion, with a $43 billion flush-out recorded. 

Source: Glassnode

However, the three leading stablecoins Tether [USDT], USD Coin [USDC], and Binance USD [BUSD], have been impacted differently. 

Since the current cycle lows set in November 2022 when cryptocurrency exchange FTX collapse began, USDT’s supply has increased by an additional $13.3 billion. USDC, on the other hand, has suffered a supply decline of $16.7 billion. 

USDC briefly lost its dollar peg in March 2023 after Circle, the company that issues it, revealed that it could not withdraw $3.3 billion of the $40 billion USDC reserves that were held at Silicon Valley Bank (SVB). This caused panic selling, and the stablecoin briefly traded as low as 96 cents.

Regarding BUSD, it has seen an 89% decline in supply since November 2022. According to Glassnode, this has been “largely due to issuer Paxos moving into a redemption-only mode following SEC enforcement.”

Source: Glassnode

Volatility remains low in the BTC market

Following periods of slight volatility uptick after the deleveraging event of 17 August and Grayscale’s victory in the courts over the Securities and Exchange Commission (SEC), BTC’s Realized Volatility has plummeted.

Glassnode found,

“The market is still in a historically low volatility environment, which is usually a precursor to heightened volatility down the road.” 

The decline in the amount of total USD volume of coins changing hands on the Bitcoin network accurately reflects the low liquidity and volatility in the market. According to Glassnode, this is “languishing around cycle lows of $2.44B/day and has returned to October 2020 levels.”

Interestingly, long-term holders remain resilient despite the on and off-chain liquidity drought. 

“The supply held by the Long-Term Holder cohort has reached a new ATH of 14.74M BTC. Conversely, the supply held within the Short-Term cohort, representing the more active portion of the market, has fallen to the lowest supply held since 2011.”