• Crypto research firm Hyblock Capital’s global bid and ask indicator fell by 20% across spot markets on Saturday due to altcoin crash.
• This sharp decline in liquidity was likely caused by market makers pulling out from the market or a single market maker running out of collateral.
• Thin liquidity means traders might struggle to execute large orders at stable prices and small orders can have an outsized impact on the going market rate.

Global Bid & Ask Metric Plunged 20%

The crypto research firm Hyblock Capital’s global bid and ask indicator, which aggregates the dollar amount of resting bid and ask orders for more than 1,100 coins listed worldwide, fell by 20% across spot markets during Saturday’s altcoin crash. This sharp decline indicates a deterioration in the crypto market liquidity, leading to paper-thin order books that could amplify price swings.

Causes Of Liquidity Decline

The drop in liquidity could be attributed to market makers pulling out from the market or a single market maker running out of collateral. According to Joe McCann, CIO of Assymetric hedge fund, some market makers likely pulled their inventory and created paper-thin order books during this collapse.

Impact On Market Prices

Thin liquidity means traders might struggle to execute large orders at stable prices as there will be fewer buyers and sellers available in the marketplace. Also, smaller orders can have an outsized impact on the going market rate since there are fewer participants looking for opportunities in the market.

Understanding The Order Book

The order book lists all outstanding orders and quotes in a particular financial instrument posted by either a market maker or other participant trading with them. The “bid” is the highest price that someone is willing to pay for an asset while the “ask” or offer is the lowest price at which someone is willing to sell it. A resting order is when someone places a limit order below or above current prices if they want to buy or sell respectively without any immediate urgency which shows up as part of this metric.

Market Makers: Providing Liquidity To The Market

Market makers are those responsible for providing liquidity into an order book by creating bid and ask orders based on their own expectations about future prices movements. They provide these services so that retail investors don’t need to take massive risks when they are buying and selling assets since they can always count on these entities being around whenever needed.