BloFin warns of low crypto market liquidity amid macroeconomic shifts

Crypto exchange BloFin warned that Bitcoin price faces high downside risk due to the current level of liquidity in the market, according to a July 3 research note shared with CryptoSlate.

Low liquidity

Liquidity often serves as a benchmark for market health. Low liquidity can indicate fewer investors entering the market or difficulties completing trades, typically affecting market performance and potentially leading to asset price declines.

The platform predicted that the crypto market’s liquidity level will remain low for the foreseeable future because investors increasingly prefer risk-free assets.

According to BloFin, this was caused by the Federal Reserve’s decision to withdraw some liquidity from the market amid the sale of treasury notes, pushing yields higher.

As a result, the value of safe-haven assets like gold, silver, and the Dollar Index (DXY) has risen significantly due to increased investor demand.

BloFin analysts wrote:

“The demand for gold from central banks worldwide is also climbing, keeping gold prices at high levels driven by demand. In comparison, the price movements of risk assets are now more affected by hedging behaviours.”

Consequently, high-risk assets like Bitcoin are experiencing low liquidity levels, which are negatively impacting their price movements. For context, gold’s price recorded a modest 1.15% increase in the past day to $2,356, while BTC’s price fell by more than 4% during the same period to around $60,000.

BloFin warned that Bitcoin continues to face high downside risk, especially if an unexpected event occurs. The firm pointed out that market makers’ impact on price stability was weakening, and Bitcoin’s price faces significant resistance at the $63,000 level while lacking significant support levels below this price target.

BloFin analysts concluded that investors should remain cautious about potential systemic market risks despite the slight increase in the butterfly index.

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