Bitcoin's huge rally is masking a drop in liquidity as smaller trades move the market

• Bitcoin's huge price rally this year is masking a decline in market liquidity.
• That means smaller bitcoin trades can have a bigger impact on the world's top cryptocurrency.

Bitcoin has surged 70% so far this year, but market liquidity for the world's top cryptocurrency is drying up.

That means smaller trades can increasingly move bitcoin prices. For example, a purchase of 462 bitcoins ($13 million) at the end of last month was able to move the price by 1% versus more than 1,400 bitcoins ($23 million) in January, according to CCData, cited by the Financial Times.

That's the lowest point of market depth for bitcoin trades via the stablecoin tether since May 2022, when the crypto market was reeling from price crashes and the failure of key industry players.

Overall liquidity in the market has been declining since the start of the year, CCData research analyst Jacob Joseph told Insider over email.

"It's worth noting that the decline in Binance's market share in April may have also contributed to the decline in liquidity for the above BTC-USDT pair," he added.

Binance's woes may be related to a crackdown by regulators on the crypto exchange firm. Meanwhile, last year's collapse of FTX and sister firm Alameda created a gap in liquidity that other crypto firms have been unable to fill, traders told the FT.

And while bitcoin's price has been on the up, especially as banking turbulence caused renewed confidence in the currency, it has stagnated lately.

In recent weeks, bitcoin has languished in the $28,000-$29,000 range. That has coincided with outflows of $72 million in digital asset investments over the last two weeks after six consecutive weeks of inflows, according to CoinShares data cited by the FT.