Bitcoin price briefly fell below $27,000 as liquidity concerns intensified

Bitcoin, the largest cryptocurrency, briefly fell below $27,000 for the first time in more than two weeks, raising concerns that a decline in participation by institutional market makers will trigger more volatile price swings. Bitcoin plunged about 5% in a matter of minutes during Wednesday's U.S. stock market trading; by the close, Bitcoin was down 0.4% at $27,535.9. Over the past month, Bitcoin has broken through the lower end of the range of about $27,000 to $30,000.

While trading volumes surged during the crypto market’s first quarter price rally, a closer look shows that volumes are the lowest in several years following a series of industry scandals, bankruptcies and tightening regulations. This has led to a reduction in trading activity at Jane Street Group and Jump Crypto, two of the world’s top market making firms. Henry Elder, head of decentralized finance at Wave Digital Assets, said: “We are currently in a very low liquidity environment. In large part, this is caused by market makers exiting the market because the regulatory picture in the U.S. has become so murky.”

Jane Street has scaled back its crypto ambitions globally as regulatory uncertainty makes it difficult for the firm to operate its business in a way that meets its internal standards, according to people familiar with the matter.

Arca trader Kyle Doane said Wednesday's decline may have been exacerbated by speculation that the U.S. government was moving large amounts of bitcoin, which has some traders worried that bitcoin is being dumped on the market at a time when there is insufficient demand.