Ether's bitcoin-beating Q3 rally came with a catch. Liquidity thinned.
Despite a significant price rally in the third quarter, Ether's market liquidity has thinned compared to previous years. Data indicates that market depth for Ether is substantially lower than that of Bitcoin, suggesting increased volatility risks for large trades.
Why it matters
Thinning liquidity in major cryptocurrencies can lead to higher price volatility and difficulty in executing large orders without impacting market prices.
Ether's price surged 70% in the quarter, outpacing bitcoin's 42% gain. Yet between July 6 and Sept. 30, its median daily market depth was just 35% to 45% of bitcoin's, according to a report by CoinGecko. In the same period last year, it was at least 60%. CoinGecko called it "a stark drop from last year's figures."
Market depth is the standard way to measure liquidity. It's the total dollar value of buy and sell orders sitting on exchanges within a set distance of the current price. The deeper the market, the more money it takes to move the price. In a thin market, a large order quickly eats through available orders and pushes the price further.
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