Bitcoin Struggles Under Liquidity Pressure as Market Depth Thins

Bitcoin’s failure to reclaim the $90,000 threshold is increasingly perceived not merely as a discourse on prevailing narratives, but rather as an intricate evaluation of market infrastructure and liquidity dynamics.

Throughout the majority of 2025, the prevailing narrative centered around institutional momentum. The United States appeared to be progressing toward a robust regulatory framework, culminating in the enactment of the GENIUS Act by President Donald Trump, which effectively federalized payment stablecoins.

Concurrently, spot Bitcoin Exchange-Traded Funds (ETFs) facilitated normalized exposure within brokerage channels, propelling the broader cryptocurrency ecosystem towards what seemed to be its long-awaited acceptance as a mainstream asset class.

This confluence of factors engendered a pronounced rally, resulting in Bitcoin achieving a new all-time high of $126,223 in early October.

However, by October 10, the structural integrity of the market began to deteriorate, precipitating a violent liquidation event that erased approximately $20 billion in leveraged positions across various cryptocurrency venues. This tumultuous episode forced Bitcoin’s price to plummet by 30% from its peak in 2025, marking the asset’s first “red October” in several years.

Subsequently, the Bitcoin market continued its descent due to diminished liquidity levels, reduced trading volumes, and significant holders liquidating their positions during price recoveries. These phenomena significantly elucidate why Bitcoin is presently struggling below the $90,000 mark instead of utilizing that level as a launching pad for new heights.

The October 10 Liquidation Aftermath

The liquidation event on October 10 proved consequential as it fundamentally reshaped the risk appetite among marginal liquidity providers.

In a robust market environment, volatility may be detrimental yet remains tradable. Market makers typically quote substantial sizes near the mid-price, arbitrage desks ensure alignment across trading venues, and large orders can be executed without inducing price gaps.

In stark contrast, following October 10, risk parameters were tightened significantly. Consequently, the market began operating with markedly diminished shock absorption capacity.

This fragility is particularly observable in the behavior of larger holders. Reports from CryptoSlate have indicated that Bitcoin “whales” have persistently divested their holdings of the leading cryptocurrency, thereby stifling market momentum even subsequent to the leverage purge.

Market Activity and Volume Trends

Moreover, this shift in market dynamics is corroborated by data pertaining to Bitcoin’s trading volumes and market depth. An analysis conducted by CoinDesk Data indicates that centralized exchange activity has retreated to its lowest levels since June.

• The combined spot and derivatives volumes across centralized exchanges experienced a month-over-month decline of 24.7%, totaling $7.74 trillion—the most pronounced monthly downturn since April 2024.
• Spot volumes decreased by 21.1%, amounting to $2.13 trillion.
• Derivatives volumes fell by 26.0% to $5.61 trillion.
• The derivatives market share also decreased to 72.5%, representing its lowest point since February 2025.

A Decline in Market Depth

The most salient warning signal for Bitcoin is its current market depth—a metric that gauges the visible buy and sell interest near the mid-price level.

This scenario elucidates what has been referred to as the “trillion-dollar illusion.” Market capitalization serves merely as a mark-to-market valuation; liquidity embodies the capacity to convert intent into execution without incurring hidden costs through slippage.

The Dynamics of Liquidity

When order books are robust and spreads predictable, institutional strategies such as scheduled rebalancing and hedging can be executed seamlessly without incurring slippage shocks. This liquidity begets further liquidity: dense transaction flows encourage tighter quoting from market makers, resulting in lower costs and attracting increased participation.

Conversely, thin liquidity engenders self-fulfilling prophecies: elevated trading costs compel participants to withdraw from active engagement, ensuring that subsequent shocks leave more profound scars on the market structure.

Data from Kaiko illustrates that Bitcoin’s aggregated two-percent market depth has contracted approximately 30% from its peak in 2025. This contraction translates into a significant shift where a fund rebalancing can trigger dramatic market movements rather than being absorbed smoothly.

Specific Observations from Binance

A recent snapshot from Binance—currently the preeminent cryptocurrency exchange by trading volume—highlights this situation effectively. According to Kaiko data:

• The one percent market depth for BTC pairs surpassed $600 million during Bitcoin’s last record high in October; however, this figure has since diminished to below $400 million at present.
• This observation underscores that while Binance may not serve as an all-encompassing proxy for global liquidity, it acts as a telling barometer for order book health across public venues.
• A reduction in depth at such a significant exchange elucidates why price rallies falter when momentum traders encounter substantial selling pressure.

ETF Flows and Off-Exchange Liquidity Migration

The second notable structural shift pertains to the evolving landscape of liquidity distribution—particularly within the context of maturing ETF structures.

Data from SosoValue indicates that investors have withdrawn over $5 billion from U.S.-listed spot Bitcoin ETFs since October 10. In an adequately liquid environment, such a demand shock would typically be absorbed gradually; however, within a constrained market framework, it engenders a “push-pull” dynamic where price stumbles at round numbers due to recurrent walls of redemptions and profit-taking interspersed with whale distribution activities.

Moreover, regulatory adjustments have further transformed how liquidity flows into and out of the system. In July, the Securities and Exchange Commission (SEC) voted in favor of allowing in-kind creations and redemptions for crypto Exchange-Traded Product (ETP) shares—a move intended to harmonize these products with their commodity counterparts.

This operational flexibility enables authorized participants (APs) to diversify their options for sourcing and delivering Bitcoin via mechanisms such as internal inventory management or over-the-counter (OTC) transactions through prime broker channels. While this reduces friction under typical circumstances, it accentuates a broader trend: liquidity is increasingly being internalized beyond observable exchange order books.

This phenomenon elucidates the current paradox: although Bitcoin remains an extensively held institutional asset, it presents characteristics indicative of mechanical fragility. Private liquidity does not bear any obligation to manifest itself during periods of tumult; thus when stressors materialize, spreads widen while order sizes diminish—resulting in heightened volatility precisely when public order book depth is at its most vulnerable state.