Plain language version: When you want to sell coins, no one is there to buy, or the price collapses as soon as you act—your Bitcoin seems valuable, but it may not be convertible to cash at all, ultimately becoming a burden.
Three core incentives
1. Transaction volume has plummeted dramatically
• The essence of the problem: The scale of market buying and selling has plummeted (e.g., daily average trading volume dropped from 10 billion to 1 billion), resulting in large sell orders going unfulfilled.
• Vicious cycle: You can only sell at a lower price, but the more you lower the price, the less buyers dare to enter, creating a deadlock of 'the more you sell the lower it goes, the lower it goes the harder it is to sell'.
• Data corroboration: In 2025, Bitcoin's on-chain activity dropped to an annual low, with some exchanges' order book depth deteriorating to 1:4.3, and order volumes falling to less than 1/5 of what they were in bull markets.
2. Large sell-offs 'crash' the market
• Instant impact: Large holders sell off (like orders of 1 billion dollars) at once, and the market depth is insufficient to absorb it, leading to a price drop of over 10% instantly.
• Real case: In August 2025, the Japanese exchange Zaif experienced slippage of up to 5.5% due to liquidity exhaustion; even mainstream platforms like Binance saw slippage exceeding 3% during large sell-offs.
• Collateral damage: Retail investors are forced to bear losses alongside the market decline, becoming victims of the 'stampede'.
3. Panic emotions self-reinforce
• Contagion chain: Market panic → Retail investors panic sell → Selling pressure surges but buyers disappear → Price collapses rapidly → Panic intensifies.
• Leverage exacerbates the crisis: High-leverage positions lead to a chain of liquidations during flash crashes, with forced liquidations further driving down prices (e.g., the 30% flash crash event on a South Korean exchange in 2024).
The harsh reality for ordinary people
• Paper wealth turns into a bubble: Today your account shows 100,000, but tomorrow when you want to cash out, you might not even sell for 80,000, or may have to discount even more.
• Withdrawal delays exacerbate the situation: During crashes, exchanges often face bank runs, and funds may take hours to arrive, missing the opportunity to stop losses.
• Extreme case warnings: In 2025, the Raydium project plummeted 28% in a single day due to a liquidity crisis, revealing that smaller coins face even greater liquidity risks.
Why is the crisis escalating?
• Structural chronic issues:
• Policy fragmentation: The regulatory divide between China and the U.S. (China banning trading vs. U.S. ETF compliance) splits the global liquidity pool.
• Institutions dominate the market: Institutions like BlackRock hold 45% of Bitcoin through ETFs, causing retail investors to lose pricing power, and institutions prioritize selling during crashes, worsening the imbalance.
• Data confirms the trend: A 'death cross' has occurred between the on-chain realized market cap curve and price; historical data shows such divergences average a duration of 214 days, suggesting liquidity pressure may persist long-term.
Summary: The liquidity crisis is the 'Achilles' heel' of the Bitcoin market—it weakens the value anchor of digital assets, putting ordinary people at the forefront.