Cryptocurrency faces liquidity risks, posing challenges during market turmoil

From Cointelegraph

June 15, 2025 11:00 AM:

Despite its decentralized nature, cryptocurrency is still a currency facing market dynamics. The global crypto market was valued at $2.49 trillion in 2024, set to double by 2033. However, the illusion of liquidity poses a major challenge as order books thin out during market turmoil. The foreign exchange market, with $7.5 trillion in daily trading volume, also shows signs of fragility.

In traditional finance, liquidity risks have shifted from banks to asset managers and algorithmic systems. ETFs and passive funds hold illiquid assets, creating a structural mismatch. This phenomenon is now seen in the crypto market, where liquidity appears robust on paper but disappears when sentiment sours.

The recent crash of Mantra’s OM token highlights crypto’s fragmented liquidity infrastructure. Tier 2 tokens lack unified pricing and liquidity support, creating an illusion of activity with little depth. Opportunistic actors engage in price manipulation tactics like spoofing and wash trading, leaving retail traders vulnerable to price collapses.

To address liquidity fragmentation, integration at the base protocol level is crucial in crypto. Crosschain bridging and routing functions embedded in blockchain infrastructure can unify liquidity pools and ensure smooth capital flow. Improved execution speeds and smart interoperability will strengthen the foundation for a more stable market.

Read more at Cointelegraph: Deep liquidity issue is crypto’s silent structural risk