Crypto bid and ask metric down 20% over weekend, indicating low liquidity.

A key measurement of the amount of available cryptocurrency for trading dropped significantly over the weekend, resulting in very low levels of orders that could lead to increased price fluctuations.

The global bid and ask indicator from crypto research firm Hyblock Capital, which combines the total dollar amount of available bid and ask orders for over 1,100 cryptocurrencies listed worldwide, fell by 20% in spot markets on Saturday.

Alternative cryptocurrencies such as SOL, MATIC, DOGE and others saw a sharp drop in value over the weekend, with rumours circulating that a fund was selling off its cryptocurrency holdings.

According to Joe McCann, the CIO of crypto hedge fund Assymetric, some market makers likely withdrew from the market during the altcoin crash, leading to a sharp decrease in the number of available bid and ask orders. “The @hyblockcapital Global Bid/Ask metric dropped a full 20% during the collapse. Seems like a bunch of MMs [market makers] pulled inventory creating paper-thin order books,” McCann tweeted. Other experts suggested that the decrease in liquidity was due to a single market maker running out of collateral.

Low liquidity means traders may have difficulty executing large orders at stable prices. It also means that small orders can have a disproportionate impact on the market rate.

The order book lists all outstanding orders and quotes for a particular financial instrument posted by market makers and other participants. The bid is the highest price a buyer is willing to pay for the instrument, while the ask or offer is the lowest price at which someone is willing to sell it. A resting order is a limit order to buy at a price below or to sell at a price above the current market rate.

Market makers are entities responsible for creating bid and ask orders and providing liquidity to an order book.

The green line represents the total dollar amount of available bid orders and the red line represents the available ask orders. Both fell over 20% to under $500 million during Asian trading hours on Saturday.

The decrease in liquidity means that the market could experience higher-than-average volatility following the release of US inflation data and the Federal Reserve’s interest rate decision. The US consumer price index is due to be released at 12:30 UTC on Tuesday, and according to Reuters data from FXStreet, the Fed is expected to maintain policy rates on Wednesday at 18:00 UTC.

Edited by Oliver Knight.

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