I love the Water / Time synergy. I think Frozen Hourglass obtains that in a more intresting way. Why should this be a Water card? Liquid Time only suggests the term water, but can be easily changed. In fact, if you change the name of the ability to "Temporal Purification" it may very well be a light card.
The fact is, the card is not tied to Water by any mechanical theme. I think this would fit Darkness or even Mono Time better.
Also, this suffers the same problem as the old Dune Scorpion. It can easily "destroy" cards by pushing them to the bottom of the deck. The only difference towards discarding altogether is that in very long matches you're going to draw them again, which is easily avoided by playing a Clepsydra Rush (think of Time Mark Tsunami, or Toadfish/Ghosts). If discarding is taboo as long as there is no Graveyard to manipulate, then this is a no-go too as long as we don't have deck manipulation à la Demonic Tutor (by the way, have you taken a look at Magnet Tracer, the Gravity permanent?).