Crypto markets may look calmer after October’s deleveraging of leverage, but beneath the surface liquidity remains absent.
Data from CoinDesk Research shows that order book depth across major centralized exchanges remains structurally lower, suggesting a more cautious market-making environment heading into year-end.
This environment paves the way for thinner markets and sharper movements, increasing the likelihood that routine trade flows will produce large price swings.
Disappearing liquidity
The liquidation cascade in October wiped out billions in open interest in a matter of hours, but it also triggered something more subtle and far more persistent: an exodus of dormant liquidity from centralized exchanges.
The damage is most evident in the two assets that anchor the entire market. In early October, just before the wipeout, bitcoin’s average cumulative depth of 1% from mid-price hovered near $20 million across major venues, according to CoinDesk Research data.
By Nov. 11, that same goal had fallen to $14 million, a drop of nearly a third, the data showed.
Market depth is a metric used by traders to assess the extent of liquidity in a market. At a 1% interval, this estimates how much capital is required to move the market by 1%, taking into account the cumulative value of all limit orders on the book.
A thin book can discourage traders looking to buy or sell larger volume as it will often cause slippage, which is where the price deviates to an area where liquidity is sufficient.
The depth of 0.5% from the mid-price fell from close to $15.5 million to just under $10 million, while the depth of the broader 5% range fell from more than $40 million to just under $30 million.
Ether shows an almost parallel pattern. On October 9, ETH was 1% deep from the midpoint just above $8 million, but by early November it had fallen to just below $6 million.
There was also a significant decrease in depth within 0.5% and within 5%, creating a completely new market structure.
According to CoinDesk Research, this failure to recover BTC and ETH liquidity is not a quirk of timing, but a structural shift.
The analysts concluded that both assets suffered a significant decline in average depth, which has not resolved, “suggesting a deliberate reduction in market-making engagement and the emergence of a new, lower baseline for stable liquidity on centralized exchanges.”
This not only affects directional traders with a long or short bias, but also for delta-neutral companies and volatility traders. Delta-neutral companies rely on strategies such as to harvest an arbitrage spread on funding rates; however, lack of liquidity means that the size must be reduced, potentially eating into profits.
Volatility trades can have mixed results, as the lack of liquidity can ultimately lead to wild swings. This is ideal for those running an options straddle, which involves buying a call and put option with the same expiration and strike price, as wide price movements in either direction will result in profit.
Altcoins rebound from panic, but not to previous strength
The contrast between BTC and ETH in relation to major altcoins is stark.
A composite basket of SOL, XRP, ATOM and ENS saw an even deeper liquidity collapse during the October washout, with a depth of 1% falling from around $2.5 million to around $1.3 million overnight. Still, this group staged a rapid technical recovery, with market makers quickly restoring orders as volatility eased.
However, that recovery did not return liquidity to the level of early October. The depth within the 1% band remains about $1 million below where it was before the wipeout, and the depth on wider bands shows the same pattern of partial repair without full restoration.
CoinDesk Research believes this divergence reflects two fundamentally different liquidity regimes: altcoins experienced a knee-jerk reaction that forced market makers to re-enter aggressively as the market stabilized, while BTC and ETH endured a slower, more targeted withdrawal of liquidity as participants reassessed risk.
“The Altcoin collapse was a temporary, panic-driven event that required rapid order recovery,” the analysts noted, adding that the major assets “underwent a more deliberate and sustained risk-off positioning.”
The pattern, a sharp drop, a quick rebound and a lower plateau, suggests that altcoins were shocked, while bitcoin and ether were repriced relative to market-maker engagement.
Macro is not a friend
If liquidity providers were already hesitant after October’s dislocation, the macro climate has given them little reason to risk again.
CoinShares data showed $360 million in net outflows from digital asset investment products during the week ending Nov. 1, including nearly $1 billion withdrawn from bitcoin ETFs — one of the heaviest weekly outflows of the year.
The US accounted for more than $430 million of these outflows, reflecting the sensitivity of US institutional flows to the Federal Reserve’s changing communication on interest rates.
Market makers tend to reduce inventories, widen spreads and limit posted size when macro uncertainty clouds directional conviction. The continued ETF outflows, the uncertainty surrounding interest rate policy in December and the general lack of strong fundamental catalysts have all contributed to a cautious stance.
What does it all mean?
The practical consequence of this reduced depth is that crypto markets are more fragile than price charts suggest.
In short: very sharp moves forward for traders.
It now requires significantly less capital to move the spot markets in both directions. Large trades by funds, arbitrage desks or ETF intermediaries can create a disproportionate impact, while even routine macro releases, such as unexpectedly strong CPI pressure, a shift in Fed comments or additional ETF outflows, risk producing exaggerated price reactions.
Lower liquidity also makes the system more vulnerable to liquidation cascades. Should open interest rebuild quickly, as it often does during quiet periods, the absence of a thick order book increases the odds that relatively small shocks could trigger another wave of forced selling.
In a more benign scenario, thin liquidity can also amplify upward moves. If risk appetite returns abruptly, the same lack of idle liquidity can give rise to large increases.
A fragile market ahead
What is clear from the data is that the October liquidation did more than liquidate legacy positions. It reshaped the structure of the crypto market in a way that has yet to relax.
Bitcoin and ether remain locked in a new, thinner liquidity regime. Altcoins, although faster to recover, are still far from the levels that characterized the beginning of October.
As the year draws to a close, crypto is now in a much more fragile position than it was at the start of October.
Whether this liquidity void will be a brief chapter or a defining feature of the market’s next phase remains to be seen, but for now the gap remains and the market continues to find a way around it – with great caution.
