Bitcoin has experienced a significant rally this month, surpassing a 12% increase since the start of June. The digital currency reached a price above $30,000 on Wednesday, its highest level since April 14. While some attribute this jump to the news that BlackRock had filed for a bitcoin exchange-traded fund, there’s another factor at play: thin liquidity and the impact of big players.
“Market depth,” which refers to a market’s ability to handle large buy and sell orders, has been at low levels throughout the year. When market depth is low and big players enter the market, even relatively small orders can cause significant price movements. Bitcoin’s market depth has fallen by 20% this year, making it one of the most affected cryptocurrencies in this regard.
The lack of liquidity can be attributed in part to regulatory scrutiny faced by the crypto industry from U.S. authorities, with lawsuits filed against major exchanges like Coinbase and Binance. Additionally, low trading volumes on exchanges are another characteristic of the current market. Daily trading volume for Bitcoin is currently around $24 billion, a significant drop from the peak of the 2021 rally when it reached over $100 billion.
In the previous bitcoin cycle, institutional investors played a key role in driving market momentum. It wasn’t until retail traders started taking notice that the market really took off. However, in the current market, trading volumes and price volatility are at multi-year lows, indicating low activity. Good news, such as the introduction of a bitcoin ETF, may trigger short-term trading activity among professional traders, but it doesn’t lead to sustained market growth.
Bitcoin has been trading within a range this year and attempts to move significantly higher have been unsuccessful. According to Carol Alexander, a finance professor, bitcoin is likely to remain within a range of $25,000 to $30,000 for the rest of the summer. However, she expects the cryptocurrency to climb towards $50,000 by the end of the year due to larger market players making significant purchases.
It’s important to note that this market is not suited for ordinary clients. Long-term institutional buyers and crypto-focused hedge funds are the primary drivers of the recent increase in bitcoin’s price. The market may be entering a “bottoming” period, similar to what was experienced in 2018, before a potential rise in the following year. However, it’s still too early to determine if the worst is over for bitcoin. The recent interest from traditional financial institutions does instill renewed optimism, but favorable macroeconomic and equity market conditions are necessary for bitcoin to maintain its positive trajectory.
Overall, while the news of BlackRock’s ETF filing may have contributed to the recent rally, thin liquidity and the impact of big players are the primary drivers of bitcoin’s price movements. The market is currently characterized by low liquidity and trading volumes, making it challenging to attract retail traders. Despite this, there is hope that the market is nearing a bottom and may start to rise again in the future.
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