Ethereum Outperforms Bitcoin in Q3 But Liquidity Drops Sharply

Ethereum's native token, Ether (ETH), delivered a strong performance in the third quarter, rising 70% and outperforming Bitcoin's (BTC) 42% gain. Despite this impressive price surge, Ethereum's liquidity has significantly thinned, raising concerns about market stability. According to a CoinGecko report, the median daily market depth of Ether between July 6 and September 30 was only 35% to 45% of Bitcoin's, a sharp decline from at least 60% during the same period last year.

Market depth, a measure of liquidity, indicates the total dollar value of buy and sell orders within a certain price range. A shallow market depth means large orders can quickly move prices, increasing volatility. For Ethereum, the depth within 0.15% of the current market price ranges from $13 million to $14 million, highlighting the reduced capacity to absorb large trades without significant price impact. CoinGecko noted that while liquidity remains robust above $1 million on most exchanges, the overall trend is concerning.

The liquidity issue is not confined to Ethereum. Solana's (SOL) token has also experienced a contraction in liquidity, with depth within a 2% price range dropping from approximately $28 million last year to about $20 million this year. This reduction suggests a diminished ability to withstand large price swings. Meanwhile, XRP's total depth stands around $30 million, but its order book favors buyers, with buy orders totaling $18 million compared to $14 million in sell orders.

The data challenges the common belief that price increases attract more traders and deepen order books. Ethereum's case demonstrates that strong price performance does not necessarily translate into stronger demand absorption. This trend underscores the importance of considering liquidity risks in position sizing and stop-loss strategies, especially as major cryptocurrencies continue to exhibit thinning market depth.