Although the outlook for cryptocurrency investors has slightly improved, a potential severe liquidity crunch in the market may deter investors. As 2022 is on the verge of coming to a conclusion, analysts are taking stock of the lessons grasped by looking for tendencies that could presage bullish price movement in 2023. This year has been almost unparalleled in the number of extremes and black swan events that have affected the crypto market.

Three Arrows Capital, Terra Luna, and FTX’s demise led to a credit crisis or a sharp decline in capital inflows, with a greater risk that other significant centralized exchanges would follow suit.

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Despite how severe the Bitcoin market slump has been, some advantages have surfaced. Data indicates that during this time of low eccentricity of Bitcoin, smaller wallets and long-term holders are operatively stockpiled.

Bitcoin Encounters Limited Liquidity And Realized Losses

When liquidity began flooding the market in Nov 2021, the price of bitcoin hit a consistent high, and shareholders perceived approximately $455 billion in gains. Contrarily, as liquidity hardened in what many shareholders had assumed to be awful days of the market (bear), $213 billion in realized losses urged the shareholders to return around 46.8% of the mounting bull market gains. The magnitude of the gains vs. realized deficits resembles the bear market in 2018 when the proportion of retraction from profits peaked at 47.9%.

Cumberland claims that insufficient liquidity is the result of widespread capitulations, which leave bankrupt companies with no more coins to trade. According to CoinShares’ study of weekly money flows, trade volume for the week hit a record two-year sink of around $677 million. Potential gains are further hampered by the low trade volumes and the crypto funds leaving digital assets. CEX has historically been a root for onboarding fiat, which aids in bringing additional money into the crypto aid ecosystem. Obtaining new capital has become difficult because of regulatory worries and CEX suspicions.

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