Bitcoin (BTC) price drops to lowest since March due to liquidity issues

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Bitcoin faces a number of headwinds, including low liquidity which contributes to volatility. US regulators are also watching the crypto industry closely.

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Bitcoin traded Friday at its lowest level since mid-March as volatility, driven by low liquidity, continued to plague cryptocurrency markets.

Bitcoin was trading at $26,312.23 around 5:09 a.m. ET, after falling below $27,000 on Thursday, according to data from CoinDesk. This is its lowest level since March 17.

Ether, the second-largest digital currency by market capitalization, also fell on Friday.

Crypto markets are currently facing a number of issues, including low liquidity, a crackdown on the industry by US regulators, and macro concerns.

Liquidity issues

Bitcoin has risen around 59% this year, but prices have remained volatile, with low liquidity exacerbating higher and higher moves.

ClaraMedalie, director of research at Kaiko, said there has been a “noticeable decline in market depth” for bitcoin.

Market depth refers to the ability of a market to absorb relatively large buy and sell orders. When market depth is shallow, relatively small orders can cause an asset’s price to rise or fall substantially.

And the liquidity situation could worsen after Bloomberg reported that Jane Street and Jump Crypto, two of the biggest crypto market makers, will step back from U.S. crypto trading as regulators across the country continue their crackdown on infant industry.

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“While the catalyst for today’s sharp decline is still unclear, volatility is to be expected given the current state of liquidity, particularly after top market maker Jane Street and Jump Crypto disclosed that they were reducing their exposure to crypto,” Medalie said.

Liquidity has been a big issue for crypto markets since the shutdown of Silvergate and Signature Bank, two key platforms people used to buy into the crypto market.

Regulatory control, congestion issues

US regulators’ scrutiny of the digital currency industry has intensified since the collapse of crypto exchange FTX last year.

The U.S. Securities and Exchange Commission warned U.S. crypto exchange Coinbase in March of possible violations of securities laws. Coinbase CEO Brian Armstrong said the company is preparing for a years-long court battle with the SEC.

Meanwhile, the Commodity Futures and Trading Commission alleged in March that crypto exchange Binance violated trading rules.

The crypto industry is in a battle with US regulators, accusing the SEC and the US government of failing to set clear rules.

Meanwhile, the bitcoin network itself has faced congestion in recent days, with Binance being forced last week to temporarily halt bitcoin withdrawals. Bitcoin transaction fees have increased this week and although they are decreasing, they remain at high levels. The original bitcoin network was not designed to handle high volume transactions.

“Bitcoin’s attempts to break above $30,000 failed amid a triple whammy of congestion issues on the blockchain, liquidity constraints caused by the reduction of major market makers Jane Street and Jump Crypto, and ever-changing regulators,” Antoni Trenchev, co-founder of Nexo, told CNBC via email Friday.

– CNBC’s Tanaya Macheel contributed to this report.

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