Liquidity in the Ethereum (ETH) market has noticeably improved. As CryptoQuant analyst Arab Chain notes, the liquidity index on the Binance exchange rose to about 1.15 — the highest in the last three months. The increase coincided with ETH trading near $1,700.

According to the researcher, the metric reflects the return of liquidity to the market after the decline that began in the winter of this year. This may indicate a gradual recovery in trader activity.

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How the index changed

According to Arab Chain, in February the index rose above 1.6, but then moved to a smooth decline. By the end of April and the start of May it dropped below 0.8, reflecting an outflow of liquidity from the market.

In the following weeks the trend clearly reversed. The index gradually grew along with trading volumes, and liquidity turnover exceeded 20 million ETH.

The liquidity index is a tool that shows how easily buy and sell orders can be filled without a strong impact on the price. The higher the value, the deeper the market and the lower the cost of trading.

What this means for the market

The current value of about 1.15 indicates a noticeable improvement in market depth. This means Binance is able to absorb larger trading volumes without causing sharp swings in the price of Ethereum.

High liquidity is usually associated with more stable price movement during periods when it is low. Therefore the growth in activity may support calmer trading conditions in the near term.

According to Arab Chain's assessment, if the index holds at a high level, it will be a signal of further improvement in trading conditions and order-execution efficiency. Conversely, its decline would point to weakening activity and a reduction in available liquidity.

Source: BeInCrypto