Opinion by: Arthur Azizov, founder and investor at B2 Ventures
Despite its decentralized character and great promises, cryptocurrency is still a currency. Like all currencies, it cannot escape the realities of today’s market dynamics.
As the crypto market develops, it begins to mirror the life cycle of traditional economic tools. The illusion of liquidity is one of the most pressing and surprisingly less addressed problems that stem from the development of the market.
The global cryptocurrency market was appreciated at $ 2.49 trillion by 2024 and is expected to more than double to $ 5.73 trillion by 2033, which grew with a composite annual growth rate of 9.7% over the next decade.
However, during this growth lies a fragility. Like the FX and Bond markets, Crypto is now challenging Phantom Liquidity: Order books that look robust during quiet periods that are quickly thinned out during the storm.
The illusion of liquidity
With over $ 7.5 trillion in the daily trading volume, the currency market is historically perceived as the most fluid. Still, even this market now shows signs of fragility.
Some financial institutions and dealers fear the depth of the market, and regular slides on even the most fluid eg -pairs that EUR/USD become more tangible. Not a single bank or a market manufacturer is ready to face the risk of having volatile assets during a sale-the so-called stock risk-2008.
In 2018, Morgan Stanley noticed an in -depth shift in where the liquidity risk lives. After the financial crisis, the capital requirements pushed out of the liquidity provision. Risks did not disappear. They just went to asset managers, ETFs and algorithmic systems. There was a boom of passive funds and stockpiled vehicles left today.
In 2007, index-style Funds contained only 4% of MSCI World Free Float. In 2018, this figure had tripled to 12% with concentrations up to 25% in specific names. This situation shows a structural mismatch – fluid wrapping that contains illiquid assets.
ETFs and passive funds promised easily entry and exit, but the assets they had, especially corporate bonds, could not always meet expectations when the markets became unstable. During drastic price fluctuations, ETFs are often sold more intensively than underlying assets. Market manufacturers demanded wider spreads or refused to enter, unwilling to keep assets through turmoil.
This phenomenon, first observed in traditional funding, now plays out with confidential confidence. Liquidity can only be robust on paper. Onchain activity, token volumes and order books on centralized exchanges all indicate a healthy market. But when emotions sours, the depth disappears.
Crypto’s liquidity illusion finally arrives at light
The illusion of liquidity in crypto is not a new phenomenon. During the 2022 -crypto -downturn, greater token experienced the significant sliding and expanded span, even on top exchanges.
The recent crash of mantras about -token is another reminder – as the mood changes, bids disappear and price support evaporates. What first looks like a deep market under quiet conditions can instantly collapse under pressure.
This happens mainly because Crypto’s infrastructure remains very broken. Unlike shares or eg markets, crypto -liquidity is spread over many exchanges, each with its own order book and market manufacturers.
Recent: Asia has crypto -liquidity but US Treasurys will unlock institutional means
This fragmentation is even more tangible to level 2 symbols – those outside the top 20 of the market capital. These assets are listed across exchanges without total pricing or liquidity support and are dependent on market manufacturers with different mandates. So there is liquidity, but without meaningful depth or cohesion.
The problem is aggravated with opportunistic players, market manufacturers and token projects that create an illusion of activity without contributing to real liquidity. Spoofing, wash shop and inflated quantities are common, especially on small exchanges.
Some projects even stimulate an artificial market depth to attract lists or to seem more legitimate. However, when volatility strikes, these players immediately withdraw and leaves retailers to-to-to-to-to-to-to-to-to-toe with a price collapse. Liquidity is not only fragile, it is simply false.
The solution to the liquidity problem
Basic protocol integration required to handle liquidity fragmentation in crypto. This means you embed the Crosschain Bridging and Routing Functions directly in Blockchain’s core infrastructure.
This approach, which is now actively covered by selected LAG-1 protocols, does not treat asset movement as a reflection, but as a basic design principle. This mechanism helps to combine liquidity pools, reduce market fragmentation and ensure a smooth capital flow across the market.
Furthermore, the underlying infrastructure has already come a long way. Execution speeds that once took 200 milliseconds are now down to 10 or 20. Amazon and Google’s cloud ecosystems that have P2P messages between clusters make it possible to process trades completely in the network.
This performance layer is no longer a bottleneck – it’s a starting plate. It gives market producers and trading bots the opportunity to operate smoothly, especially since 70% to 90% of stablecoin transaction volume, which is a large segment of the crypto market, now comes from automated trade.
However, better plumbing alone is not enough. These results should be paired with smart interoperability at the protocol level and overall liquidity routing. Otherwise, we continue to build high -speed systems on the fragmented soil. Still, the foundation is already there and eventually strong enough to support something bigger.
Opinion by: Arthur Azizov, founder and investor at B2 Ventures.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and statements expressed here are the author’s alone and does not necessarily reflect or represent the views and opinions from Cointelegraph.