Bitcoin (BTC) Liquidity Hits 10-Month Low, Expect More Volatility Ahead

The world’s largest cryptocurrency Bitcoin (BTC) has continued to show strength amid the current banking crisis, inflationary pressure, and uncertain macro environment. Over the last weekend, the Bitcoin (BTC) price has been consolidating just under $28,000 levels.

Although the Bitcoin price has increased by over 70% since the beginning of the year, the BTC liquidity has dropped to a 10-month low. The 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 that the bids and asks for BTC are within the 2% range of the price on both sides of the market maker order books. He said that the liquidity drop happens as exchanges that buy and sell crypto lose access to banking systems and USD payments. Speaking to Bloomberg, Ryder added:

“Liquidity on US exchanges and USD pairs in particular have been hardest hit thanks to the banking fears. It looks as if a big reason for the latest price rally in BTC was due to illiquidity, when depth is low, there is less support to not only the downside but also the upside as well.”

Earlier this month, we saw the shutdown of two major crypto-friendly banks – Signature and Silvergate. These lenders banked with several crypto firms that relied on them for their services and real-time payments. “Until some clarity appears in the US, we can probably expect more volatility in the short term, until we get that injection of liquidity that markets need,” Ryder said.

Is Bitcoin Really Rallying Due to Banking Crisis?

There’s a strong narrative in the crypto space that the Bitcoin price rally comes amid the current banking crisis. However, not everyone is convinced with this as analysts are gauging whether this was the real reason or that Bitcoin investors are turning hopeful with the expectations 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 FTX collapse in late 2022, crypto trading volumes came crashing down. Although the volumes have picked up since the beginning of 2023, they are nowhere close to record-high levels. Aoifinn Devitt, CIO at Moneta said that 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-based ownership, you can get more volatility. The same thing may be happening with stocks. Some of the large systematic traders have been triggers for heightened volatility.”

Popular investor Balaji Srinivasan has assured that the Bitcoin price shall reach $1 million as the US faces hyperinflation.