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The Cryptocurrency Market Suffers from Shockingly Low Levels of Liquidity

  • CoinMarketCap’s new metric shows low levels of liquidity in the crypto market.
  • A renowned analyst explains that less than 1% of all cryptos are liquid.
  • Prominent figures in the industry agree that 99% of all cryptos will not prevail.

CoinMarketCap, the leading cryptocurrency data tracking services platform, recently rolled out a new metric, dubbed Liquidity. Its primary purpose is to provide the “real trading activity” of most of the cryptocurrencies and crypto exchanges in the industry. An early glimpse shows a lack of institutional investment, adding credibility to the belief that 99% of all cryptos are worthless.

CoinMarketCap’s Liquidity

According to the chief strategy officer at CoinMarketCap, Carylyne Chan, the methodology to rank cryptocurrencies and crypto exchanges by daily volume lost its value and is now an obsolete metric in the industry. The firm is now moving into a new system that “highlights what matters most to investors and traders, [which is] liquidity.”

With the lack of transparency in the crypto market, it is easy for people to inflate trading volumes. According to Chan, individuals can insert orders into order book where they essentially buy and sell to themselves. These types of practices are even available for a small fee that guarantees that tokens and exchanges have enough “volume.”

Gotbit is a Russia-based unregistered startup that is well known for providing these services.

The lack of regulation in the cryptocurrency industry allows these questionable practices to take place. CoinMarketCap’s Liquidity is trying to change that.

Chan said,

We believe our adaptive methodology will make our metric very difficult to ‘game’ as orders would need to be placed close to the mid-price, or risk being counter-productive to the Liquidity metric scoring.

Shockingly Low Levels of Liquidity in the Market

CoinMarketCap’s Liquidity has brought with it a hard-to-swallow truth. The reality is that there is extremely low levels of liquidity across the entire market.

Investopedia defines liquidity as,

The degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. In other words: the ease of converting it to cash.

At the moment, it is not so easy to convert cryptocurrencies to cash. The inability to quickly trade an asset on the open market allows a few whales to hold massive amounts of any given crypto, making it easier for them to manipulate the market. This could be the main reason why institutional interest in the industry has not picked up yet.

According to Willy Woo, a partner at Adaptive Capital, 4,938 out of the 4,978 tokens on CoinMarketCap are illiquid. He believes that only the top 40 cryptocurrencies in the market provide the “ease of converting them to cash.” Therefore, less than 1% of all the cryptocurrencies listed on CoinMarketCap offer a certain level of liquidity.

He said,

Investors want liquidity at entry and liquidity on exit. Very few coins have credible liquidity to be good investments.

Levels of liquidity among the top 50 cryptocurrencies in the market. | Source: Twitter

Woo explained that, under the current market condition, those who are looking to invest in any of the 4,938 illiquid cryptocurrencies have a 5% chance of getting a return on their investments.

Willy Woo believes that allocating capital into most cryptocurrencies represents “startup bets.” | Source: Twitter.

99% of all Cryptos are Worthless

Willy Woo is not the first one in the industry to claim that only 1% of all cryptos will prevail.

Last week, Ripple CEO Brad Garlinghouse, CEO at Ripple, told Bloomberg the industry is full of worthless projects.

He said:

I have said before that I think 99% of all crypto is likely to go to zero. But, there is that 1 percent that is focused on solving real problems for real customers and can do that on scale. And, that is going to be game-changing and will continue to grow significantly in the years ahead.

Additionally, former JP Morgan VP Tone Vays has repeatedly stated that 99% of cryptocurrencies are possibly scams. Vays believes that the premise of bitcoin relies in its decentralization, censorship resistance and immutability. Not all cryptos have the same characteristics.

He told CCN,

There are a small handful of honest projects that just do not have the same qualities as bitcoin. Meanwhile, the majority, 99% of all other cryptocurrencies are just completely centralized, at risk of censorship, and are not technologically secure.

Time will tell which cryptocurrencies will prove their intrinsic value and provide real-world solutions.

This article was edited by Sam Bourgi.