Crypto markets fracture as liquidity islands and capital dispersion emerge amid broad selloff: analysts

Crypto markets are yet to steady after the recent sharp selloff, but analysts say the more notable development has been fragmentation in liquidity and performance across venues and assets rather than a decisive directional reset.

Bitcoin is down over 17% in the last week alone, and trading near the same levels as on the night of President Donald Trump’s election victory, according to The Block’s price page.

Most of the crypto market has mimicked BTC’s slump, with majors like Ethereum (ETH), Solana (SOL) and BNB all down double-digit percentages over the past week.

Liquidity islands

Analysts at the quantitative yield protocol Axis have flagged the emergence of "liquidity islands," referring to pockets where capital is unevenly distributed across exchanges and protocols as risk appetite thins.

"Funding rates are flipping negative on some venues while spiking on others due to liquidity crunches," said Ashwin Khosa, chief strategy officer at Axis, adding that capital has become effectively trapped on specific platforms amid fear and broken cross-venue plumbing.

Onchain data has also pointed to a split in positioning.

Nicolai Sondergaard, a research analyst at Nansen, said derivatives markets have shown a net long bias on platforms such as Hyperliquid, while other participants have rotated toward stablecoins or tokenized gold exposure such as PAXG. Sondergaard noted that exchange outflows can indicate selective accumulation and a reduced desire to sell, even as overall conviction remains limited.

Capital dispersion

Dispersion also appeared in product flows and asset performance.

Bitfinex analysts said that while Bitcoin and Ethereum exchange-traded products faced heavy redemptions late last month, Solana- and XRP-linked products attracted inflows, pointing to tactical rotation.

Hyperliquid’s HYPE token even rose as much as 44% as markets sold off, standing out as a rare gainer amid broader weakness, according to Bitfinex data.

Moreover, cross-asset signals have reinforced the dislocation theme.

Thomas Perfumo, global economist at Kraken, said gold has briefly exhibited higher realized volatility than bitcoin. He argued that this setup is more consistent with a short-term blow-off top than a durable shift in safe-haven narratives.

While liquidity islands form and surprise outperformers spring up, some experts suggest a clearer move for Bitcoin and the broader crypto market is on the horizon.

Tony Severino, a market analyst at YouHodler, pointed to historically tight Bollinger Bands on Bitcoin’s monthly chart, a signal of extreme volatility compression that has often preceded decisive moves once volatility expands.