Leverage Took a Hike, Liquidity Took a Nap: Crypto Hits Q3 Lighter on Both 📉

Cryptocurrency markets entered the third quarter with less leverage but thinner liquidity after a wave of liquidations cleared speculative positions while major sources of demand weakened during the second quarter, according to a market update from institutional data provider Talos. Bitcoin ($BTC) and Ether ($ETH) long liquidations totaled $8.35 billion in Q2, and the deleveraging coincided with spot Bitcoin exchange-traded fund outflows, reduced buying by Strategy and a contraction in stablecoin supply. Talos said the reset left the market more stable heading into Q3, but reduced order-book depth weakened its ability to absorb renewed selling pressure, leaving prices more vulnerable to sharp swings even as the risk of a chain reaction of forced selling diminished.

The liquidation wave reduced the amount of leveraged money in the market. Bitcoin open interest fell to $33.5 billion, down 32% from its Q2 peak, while Ether open interest dropped to $16.2 billion, a 40% decline, according to Talos. The market also became less liquid: Bitcoin's 2% order-book depth fell to between $35 and $40 million by late June from about $70 million in early May, and spot exchange volume declined 28% quarter-over-quarter to $2.32 trillion.

Weakening demand was evident before the end of Q2. US spot Bitcoin ETFs recorded $696.3 million in net outflows in a single day on June 25, with June posting about $4.5 billion in outflows and pushing year-to-date totals to $5.5 billion. Strategy purchased roughly 3,600 BTC in June, down from about 25,000 BTC in May and more than 50,000 BTC in April, according to company disclosures. The company also recorded a net sale of 32 BTC earlier in June and ended the month with 847,363 Bitcoin in its treasury, purchased at an average price of $64,103 apiece.