Historically, market capitalization has been a controversial metric, as it does not consider liquidity and token inflation. Most recently, Alameda misrepresented the value of numerous tokens on their balance sheet that proved to be virtually illiquid on open markets.

To better understand the utility of this metric, we compare market depth for the top non-stablecoin cryptocurrencies relative to their ranking by market cap, as ranked by CoinMarketCap. We compute depth by taking the sum of bids and asks within 2% of the mid price for all USD and stablecoin-quoted pairs across 19 centralized exchanges.

The good news is that there seems to be a positive relationship between liquidity and market cap for the top 10 crypto assets — the larger the market cap the deeper the market depth. However, this relationship is less clear for smaller-cap altcoins.

Overall, crypto market liquidity is very concentrated, with the gap between BTC/ETH and altcoins persistently high. As of November 2022, the average depth for BTC and ETH was over $190mn and $130mn, respectively. For context, average depth for each other asset analyzed is below $30mn. Overall, the top 10 crypto assets attract 80% of total market liquidity.

Smaller altcoins also exhibit strong divergences with no consistent relationship between market cap and liquidity. For example, Chainlink’s LINK token is more liquid on CEXs than DOT, SHIB, UNI, and AVAX despite its market cap being lower by 30–50%.

These divergences could be partly explained by the fact that CEXs are not the main market for some of these smaller tokens (such as UNI or WBTC), which have higher volumes on DEXs. However, the divergences suggest that altcoin liquidity is unequally distributed and not wholly correlated to the token’s market cap.