In order for a market maker to post bids and asks in BTC they need to offset their position in another shitcoin. So if a market maker sells BTC they then buy ETH. This makes them (short the BTC-ETH spread) they then buy the spread to close the trade for some $. They will do it with all the other shitcoins as well.

As BTC-ETH goes higher that just means market makers are willing to trade for less and less size in BTC. Liquidity is just market book depth. How many contracts/coins can someone buy without moving the price a ton.