Cryptocurrency trade on Binance and other major exchanges has been on a steady decline since the start of 2021, largely as a result of the withdrawal of promotions and interruptions of banking services. This has had a significant impact on Bitcoin liquidity, which has more than halved on Binance since February and fallen drastically on other majors platforms. This reduced liquidity, combined with the unfavorable banking environment has led to increased volatility when trading Bitcoin and other crypto assets.

Recent data from the Kaiko analyst Dessislava Aubert revealed that the overall liquidity of Bitcoin on Binance declined from a high of around $45 million at the start of February to $16 million in early May. Trading volumes for Binance's most-traded pair, BTC-USDT, tanked from $16 billion in March to $2 billion in April, a decrease of nearly 88%. Evidence of the decreased liquidity and volumes can be seen in Binance's 1% market depth, which saw a significant decline after the banking failures occurred in the crypto sector.

The reduction in liquidity has encouraged more pronounced price swings in markets experiencing low liquidity, with the Kaiko intraday volatility metric shooting up as the liquidity began to decline. Low liquidity often results in a thin order book whereby large orders can cause wild price movements. This was seen recently when Bitcoin dropped despite ratings that seemed to suggest an uptrend, as is expected with other speculative assets in an environment with low-interest rates.

In conclusion, the decline of liquidity, volumes, and decline of banking services has had a large impact on themarket for cryptocurrency and the trading environment for Bitcoin. Increasing volatility has been seen alongside decreased liquidity, with large orders swinging the market in significant ways. In the current landscape, market makers and liquidity providers have left the scene and as such, it looks likely that these price swings will continue for some time.



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