There are thousands of cryptocurrencies in existence today. CoinMarketCap lists 4,972 different cryptocurrencies, while CoinGecko lists 6,449 different cryptocurrencies. This makes it seem like the crypto space has an endless amount of variety. However, data shows that almost all of these cryptocurrencies have practically no liquidity and are pretty much dead.
Larry Cermak analyzed liquidity data from CoinPaprika, and found that 95% of cryptocurrencies are illiquid when defining illiquid as cryptocurrencies that have less than $10,000 of buy/sell orders within 10% of the order book midpoint price. In other words, a cryptocurrency defined as illiquid would see a significant market movement of 5-10% from an order of less than $10,000. Further, another 2% of cryptocurrencies had very little liquidity.
Indeed, only 48 cryptocurrencies have more than $1 million of liquidity. By far the most liquid cryptocurrency is Bitcoin (BTC), with $1 billion of liquidity according to CoinPaprika data.
That being said, CoinMarketCap estimates that the entire liquidity of the crypto space is around $500 million, so CoinPaprika’s estimate of $1 billion of liquidity for Bitcoin (BTC) alone is a far higher estimate than CoinMarketCap. It is undisclosed at this time exactly how CoinMarketCap or CoinPaprika obtains their liquidity estimates, aside from the fact that both services tally up exchange order books to estimate liquidity.
Assuming CoinPaprika is accurate, Ethereum (ETH) is by far the most liquid altcoin with $200 million of liquidity. After that, EOS has $78 million of liquidity, Litecoin (LTC) has $77 million of liquidity, Ripple (XRP) has $73 million of liquidity, and Bitcoin Cash (BCH) has $62 million of liquidity.
After these top 6 most liquid cryptocurrencies there is a precipitous drop off in liquidity, with Bitcoin SV (BSV) having $25 million of liquidity, Tron (TRX) having $24 million of liquidity, Ethereum Classic (ETC) having $22 million of liquidity, NEO having $18 million of liquidity, Binance Coin (BNB) having $16 million of liquidity, Monero (XMR) having $15 million of liquidity, Dash (DASH) having $12 million of liquidity, and Zcash (ZEC) having $10 million of liquidity.
Thus, only 14 cryptocurrencies have more than $10 million of liquidity, and these 14 cryptocurrencies are the most desirable for institutional investors. That being said, by far the most desirable options for institutional investors are Bitcoin (BTC) and Ethereum (ETH), since these are the only two cryptocurrencies that can handle truly large trades without changing much in price.
It may actually be good news that all but several handfuls of cryptocurrencies basically have no liquidity. In 2017 and 2018 the initial coin offering (ICO) boom reached the peak of its speculative frenzy, diverting investor money into numerous ICO projects that ended up being scams or poorly planned. Now most of the ICOs have collapsed, especially since the Securities and Exchange Commission (SEC) has been aggressively suing the remaining active ICOs.
This is reflected in the Bitcoin dominance percentage, which has risen from 32% in early 2018 to 69% currently, as investment shifts from the ICO sector back to Bitcoin (BTC).
As shown by liquidity data and the Bitcoin dominance percentage, the bulk of crypto investment and trading activity has concentrated itself around Bitcoin (BTC) and a select few other major cryptocurrencies. This is a much healthier situation than most of the investment and trading activity being centered around fraudulent ICOs, as was the case in alot of 2017 and 2018, which ultimately resulted in widespread losses and untold numbers of investors being scared away.
Basically, the crypto space is now focused on only the best cryptocurrencies, and attention has shifted back towards building better infrastructure and increasing crypto adoption, rather than attention being focused on ICOs. This is a much safer and more stable situation for crypto traders and investors, and is paving the way for a crypto space rebound in 2020.