Altcoins

Liquidity Crisis Hits Crypto Markets Hard; Can Bitcoin & Ethereum Recover?

As Bitcoin and Ethereum prices grapple with maintaining their bullish momentum this year, the overall crypto trading volume has experienced a decline in recent weeks. Despite earlier reports of trading volume solely in the Bitcoin segment reaching $37.1 billion, the total crypto market trading volume has now reached this figure, highlighting the drop in liquidity for risky assets.

This decrease in volume can be attributed to multiple factors, including the United States Treasury’s plan to refill its depleted Treasury General Account (TGA) and the impending monetary tightening policies of the Federal Reserve.

Crypto Trading Volume Takes a Hit

The dwindling crypto trading volume is a cause for concern in the digital asset market. Analysts anticipate the United States Treasury’s move to replenish the cash reserves, leading to a period of condensed liquidity. The riskier assets, such as Bitcoin and Ethereum, which are more sensitive to liquidity conditions, are likely to be affected the most. Macroeconomic analyst Noelle Acheson explained that these assets tend to be more impacted by liquidity than safer investment options like bonds and certain equities.

Also Read: On-Chain Data Shows Most Bitcoin Holders are Selling at a Loss – Coinpedia Fintech News

Impact of Treasury Account Replenishment

The drawdown of funds from the Treasury General Account at the Federal Reserve had previously provided a boost to the market by injecting money into the economy through government expenditures. However, as the Treasury aims to refill its almost empty TGA, a sizable amount of cash, estimated at $500 billion, will be withdrawn from the financial system. This move, coupled with the potential resumption of the Federal Reserve’s monetary tightening policies, is expected to have a substantial impact on risk assets.

“This is likely to especially hit risk assets as they tend to be more sensitive to liquidity conditions than safer plays such as bonds and many groups of equities,” macro analyst Noelle Acheson said.

“The Treasury drawing down its account at the Fed was one of the tailwinds for the market earlier this year, as money that would normally just sit there was put into the economy in the form of government expenditures,” Acheson explained.

Regulatory Crackdown Adds to the Woes

In addition to the liquidity challenges, the ongoing regulatory crackdown by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) has led to the closure of several crypto firms in the United States. These regulatory actions have created further uncertainty and a challenging operating environment for cryptocurrency businesses.



Source link

Back to top button
Please enter CoinGecko Free Api Key to get this plugin works.