Bitcoin price volatility likely ahead as liquidity drops significantly
The world’s largest cryptocurrency Bitcoin (BTC) has continued to show strength amid the current banking crisis, inflationary pressures and uncertain macro environment. Over the past weekend, the Bitcoin (BTC) price has consolidated just below $28,000 levels.
Although the Bitcoin price has increased by over 70% since the beginning of the year, BTC liquidity has fallen to a 10-month low. Liquidity represents how easy it is to buy and sell cryptocurrency. Thus, lower liquidity means less participation and chances of greater price volatility.
Conor Ryder at Kaiko said the bids and asks for BTC are within the 2% range of the price on both sides of the market maker’s order books. He said the liquidity drop happens when exchanges that buy and sell crypto lose access to banking systems and USD payments. Speaking to Bloomberg, Ryder added:
“Liquidity on US stock exchanges and USD pairs in particular have been hit hardest thanks to the bank scare. It looks like a big reason for the recent price rally in BTC was due to illiquidity, when the depth is shallow there is less support for not only the downside but also the upside.”
Earlier this month we saw the closure of two major crypto-friendly banks – Signature and Silvergate. These lenders banked with several crypto firms that trusted them for their services and real-time payments. “Until some clarity emerges in the US, we can probably expect more volatility in the short term, until we get the injection of liquidity that the markets need,” Ryder said.
Is Bitcoin Really Going Down Due to Banking Crisis?
There is a strong narrative in the crypto space that the Bitcoin price rally is coming amid the current banking crisis. However, not everyone is convinced of this as analysts gauge whether this was the real reason or Bitcoin investors are getting hopeful with the expectation of potentially lower interest rates.
Bitcoin is currently trading in the zone of a very strong support wall between $27,170 and $27,970, where 1.45 million addresses bought over 700,000 Bitcoins.
With the FTC collapse at the end of 2022, crypto trading volumes crashed. Although volumes have picked up since early 2023, they are nowhere near record highs. Aoifinn Devitt, CIO of Moneta said the crypto market could be prone to greater volatility as ownership of coins is largely centered around a small number of investors. She added:
“Ownership is more concentrated there, so when you don’t have that broad ownership, you can have more volatility. The same can happen with shares. Some of the big systematic traders have been triggers for increased volatility.”
Popular investor Balaji Srinivasan has assured that the Bitcoin price will reach $1 million as the US faces hyperinflation.
