On Friday, the value of Bitcoin dropped to its lowest level since mid-March due to ongoing volatility caused by low liquidity in the cryptocurrency markets. CoinDesk data showed Bitcoin trading at $26,312.23 around 5:09 a.m.
ET after slipping below $27,000 on Thursday. Ether, the second-largest digital currency by market capitalization, also experienced a decline in value on Friday.
Several challenges confront the cryptocurrency markets, including low liquidity, macroeconomic concerns, and increased regulatory scrutiny by US regulators. Bitcoin has increased by approximately 59% this year, but its prices remain volatile due to low liquidity.
The market’s ability to absorb significant buy and sell orders, known as market depth, has declined notably for Bitcoin.
Regulatory scrutiny has intensified since the collapse of the FTX cryptocurrency exchange last year. The US Securities and Exchange Commission warned Coinbase, an American cryptocurrency exchange, in March about potential violations of securities laws.
Coinbase CEO Brian Armstrong anticipates a prolonged legal battle with the SEC. Similarly, the Commodity Futures and Trading Commission accused Binance, a cryptocurrency exchange, of violating trading rules in March.
Moreover, the liquidity situation in the crypto market may deteriorate further as major market makers such as Jane Street and Jump Crypto withdraw from crypto trading due to increased regulatory pressure.
Despite the catalyst for the recent price decline being unclear, analysts believe it is not unexpected given the current state of liquidity.