Over the weekend, a key metric that tracks the liquidity of the crypto market plummeted sharply. This left order books so thin they could potentially amplify the price swings.

The global bid-ask indicator of Crypto Research Firm Hyblock Capital, which combines the dollar amounts of resting orders for over 1,100 coins listed around the world, dropped by 20% on Saturday.

The sharp drop occurred as alternative cryptos like SOL and MATIC crashed amid rumors that a fund was liquidating its coinholdings.

According to Assymetric CIO Joe McCann of crypto hedge fund Assymetric, some market-makers likely left the market during the crash in altcoins, causing the sharp drop in resting bids and asks.

The @hyblockcapital global bid/ask metric fell by a whopping 20% during the collapse. McCann tweet that it “seems a bunch MMs [market-makers] pulled inventory, creating paper thin order books.” Some observers claimed that the drop in liquidity was due to a market maker who ran out of collateral.

Traders may struggle to execute large order at stable prices due to thin liquidity. This means that a lot of small orders could have a huge impact on the market price.

Order books list all orders and quotes for a specific financial instrument that have been posted by market-makers and other participants. The bid is what the user will pay for the instrument. While the offer or ask is the price that someone is willingly willing to sell it at. Resting orders are limit orders to buy or sell below the current market price.

Market makers are responsible for creating bids and asks and providing liquidity to order books.

(Hyblock Capital) (Hyblock Capital) The dollar value of the resting bids and asks that are waiting to be filled dropped by 20 percent on Saturday. (Hyblock Capital) (Hyblock Capital)

The green line indicates the dollar value of the resting bid order and the red line indicates the resting request orders. Both fell by over 20%, to less than $500 million, during Saturday’s Asian hour.

Due to the decline in liquidity, the market may experience higher than average volatility after the release of the U.S. Inflation data and the Federal Reserve’s rate decision. According to Reuters data, the Fed will maintain its policy rate on Wednesday at 18:30 UTC. The U.S. Consumer Price Index is due for release on February 2nd at 12:30 UTC.

Oliver Knight is the editor.