(Bloomberg) -- Bitcoin might be astounding investors with its double-digit rally this year, but liquidity in crypto markets remains desiccated.

One measure of how easily the largest cryptocurrency can be bought or sold has fallen to 10-month lows, according to Conor Ryder at Kaiko, who summed up the bids and asks within the 2% range of the price on both sides of market maker order books. The liquidity dropoff is happening due to the firms that buy and sell crypto losing access to dollar-payment systems.

“Liquidity on US exchanges and USD pairs in particular have been hardest hit thanks to the banking fears,” Ryder said. “It looks as if a big reason for the latest price rally in BTC was due to illiquidity, when depth is low, there is less support to not only the downside but also the upside as well.”  

The ebb in liquidity has happened as Silvergate Capital Corp. and Signature Bank, which had deep connections to the crypto industry, have folded in recent weeks, with market-watchers on edge for any additional fallout or turbulence. Many digital-asset firms had banked with those lenders, while exchanges had relied on their services for real-time payments, among other things. 

“Until some clarity appears in the US, we can probably expect more volatility in the short term, until we get that injection of liquidity that markets need,” Ryder said.   

It’s all happening as crypto prices skyrocket. Bitcoin has surged roughly 70% this year, while other coins have also gained. Analysts say that turmoil in the financials sector has pushed investors toward digital tokens, which proponents claim are separate and isolated from whatever turmoil is engulfing US and European banks. 

That’s an old narrative surrounding Bitcoin that has made a comeback in recent weeks, though not everyone’s convinced it’s the main reason the crypto has been rallying. 

“Bitcoin has surged amidst the backdrop of bank collapses and fears of contagion,” wrote K33’s Torbjørn Bull Jenssen, Bendik Schei and Anders Helseth in a note this week. However, the trio added that it’s unclear whether the coin is acting as a safe-haven asset or is “simply reacting to expectations of potentially lower interest rates.”

Yet, they said, Bitcoin continues to move like a high-beta risk asset — the Nasdaq 100, for instance, has also rallied in recent weeks. “On the other hand, Bitcoin has strongly outperformed Nasdaq, gained market share relative to even higher risk crypto assets, and has risen together with gold, perceived as a classical safe haven asset,” they wrote.

Crypto trading volumes plunged in the wake of FTX’s implosion as investors, spooked by the downfall of one of the industry’s previously revered companies, retreated from the market. Trading volumes recovered as prices rose this year, though they’re nowhere near prior record levels. 

But the crypto market may also be prone to greater volatility as ownership of coins tends to be uber-centered among a relatively small number of investors, says Aoifinn Devitt, CIO at Moneta. 

“Ownership is more concentrated there, so when you don’t have that broad-based ownership, you can get more volatility,” she said. “The same thing may be happening with stocks. Some of the large systematic traders have been triggers for heightened volatility.”

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