What Are the Drawbacks of the Crypto Market? Jason Atkins Reveals the Real Liquidity Issues Behind Institutional Demand

The crypto market has long discussed the entry of institutional capital as a catalyst for the next phase of growth. However, according to Jason Atkins, chief commercial officer at Auros—a leading crypto market maker—there is a fundamental shortcoming rarely talked about: the scarcity of market liquidity. Not volatility, not negative sentiment, but the absence of genuine market depth is the biggest obstacle for Wall Street to enter at scale.

Atkins shared his views before the Consensus Hong Kong event, explaining that illiquidity is structural and not just a temporary issue. This raises a critical question: is the crypto market truly ready to absorb large flows of institutional capital?

Illiquidity, Not Volatility: The Main Barrier for Institutional Entry

Atkins’ most striking statement is that volatility is not the real enemy for institutions. Instead, the real problem is the lack of adequate liquidity channels to accommodate their large capital allocation appetite. “You can’t say institutional capital wants to come in if you don’t have the liquidity infrastructure for them to use,” he explained with a simple yet sharp analogy.

The issue can be summarized in one question: does the market have enough “seats in the car” to transport all the institutional passengers waiting to get on? Currently, the answer is not entirely.

The Reinforcing Cycle: How Deleveraging Creates a Lack of Liquidity

To understand why liquidity is so scarce, it’s necessary to grasp major deleveraging events like the October 10 Crash, which pushed leverage out of the system at a speed far exceeding its re-entry. This is not just about money lost—it’s about shaken trust and liquidity providers pulling back.

Liquidity providers react to market demand rather than proactively creating it. When trading volume declines, market makers automatically reduce their risk, widen bid-ask spreads, and decrease order book depth. This creates a vicious cycle:

Reduced depth → Increased volatility → Tighter risk controls → Further stretched liquidity

This cycle keeps the market fragile, even though long-term interest remains strong. Institutions cannot act as stabilizers in such thin markets, leaving no natural buffer when pressure hits.

The Seats in the Car Are Full: Why the Market Isn’t Ready for Large Allocations

Atkins uses an effective metaphor: “One thing is convincing them to come now, but do you have enough seats in the car?” This question perfectly encapsulates the current dilemma in the crypto market.

Large allocators operate under strict capital preservation mandates—they cannot take big liquidity risks arbitrarily. When managing wealth at the billion-dollar scale, maximizing profit is not the top priority. The key question is “can you maximize relative gains while preserving capital?” That’s the institutional game.

The crypto market has yet to provide enough room for this game. The position sizes that can be taken without causing extreme slippage are still far smaller than institutional capacity.

Volatility Is Not the True Enemy for Institutions

Atkins firmly rejects the idea that volatility is the main barrier. Volatility, in fact, is food for professional traders. Problems arise when volatility meets a shallow market. “Taking advantage of volatility is very difficult in a less liquid market,” he said, “because positions are hard to hedge and even harder to exit.”

For retail traders, this may be just an obstacle. But for institutions with strict mandates, it’s a deal-breaker. Liquidity risk is far more dangerous than volatility risk for large players.

Crypto Entering a Consolidation Phase, Not a New Innovation

Atkins also clarifies that capital outflows from crypto to AI are not the main cause of liquidity scarcity. The two sectors are not in the same cycle phase. While AI is relatively new and attracting massive investor attention, crypto has been around longer and is now entering a consolidation phase.

“I think this industry is starting to reach a point of consolidation,” Atkins said. New financial innovations in crypto are becoming rarer. Core primitives like Uniswap and AMMs (Automated Market Makers) are no longer novel. Liquidity pools, flash loans, and yield farming mechanisms are no longer breakthroughs—they are well established.

This isn’t about capital moving elsewhere; it’s about the lack of new narratives that sustain ongoing engagement. Crypto is experiencing its “LLM moment”—a phase where the foundation is stable but transformative innovation has yet to arrive.

Until the market can absorb large sizes, manage risks effectively, and ensure clean exits, new capital will remain cautious. Interest persists, but liquidity—rather than hype—will determine the next momentum.

Bitcoin Falls Amid Shift from Risk-On to Risk-Off

Recently, data shows pressure on crypto assets. Bitcoin has fallen to around $88.12K (down 2.12% in the last 24 hours), while the CoinDesk 20 index also declined, reflecting a shift in investor sentiment toward safe assets. This mirrors the volatility Atkins mentioned—markets remain vulnerable to changes in global risk appetite.

Crypto derivatives show concerning data: open interest is declining, volatility remains at low levels, and more traders are taking protective puts and short positions. All these indicate increasing defensiveness among market participants.

Optimism and Buyback Strategies: Creating Value Despite Price Pressure

The Optimism community recently approved an ambitious 12-month plan to use about half of their Superchain revenue to buy back OP tokens (Optimism Tokens). The buyback program is scheduled to start in February 2026, aiming to support the price floor and demonstrate long-term commitment to the ecosystem.

However, OP tokens are still under pressure, trading at around $0.28, down 5.63% in the last 24 hours. This buyback decision reflects Layer 2’s effort to create value amid challenging market conditions.

Pudgy Penguins: From Digital Speculation to Multi-Vertical Consumer IP

Amid macro market pressures, some NFT projects show unique resilience. Pudgy Penguins has emerged as one of the strongest NFT-native brands in this cycle, transforming from a speculative “digital luxury good” into a genuine multi-vertical consumer IP platform.

Their strategy is to acquire users through mainstream channels first—physical toys, retail partnerships, viral media—before onboarding them into Web3 via games, NFTs, and the PENGU token. The Pudgy Penguins ecosystem now includes:

• Phygital products: retail sales exceeding $13M with over 1 million units sold
• Games and experiences: Pudgy Party surpassing 500k downloads in just two weeks
• Token distribution: airdrops to over 6 million wallets

Although the market currently values Pudgy Penguins at a premium relative to traditional IP peers, sustained success depends on execution in three areas: retail expansion, gaming adoption, and deeper token utility. This exemplifies how innovation in business models—rather than just blockchain technology—becomes the key differentiator.

In conclusion, the lack of crypto market liquidity is not a problem that will disappear on its own. It’s a structural imperfection requiring fundamental solutions, not quick patches. Until then, even with clear institutional interest, new capital will continue to adopt a defensive stance, waiting for healthier market conditions to commit significantly.