- Bitcoin prices have risen more than 12% since early June.
- Investors attributed the surge to the news that BlackRock has filed for a Spot Bitcoin ETF.
- But the most likely move for bitcoin is mass purchases by so-called “whales” of bitcoin, as liquidity remains low.
- Analysts say this has caused major volatility in the price of the world’s top digital currency.
Andriy Onufrienko | Moments | Getty Images
Bitcoin surged this month, but not for the reasons you might think.
The world’s largest digital currency has risen more than 12% since early June. The price surpassed $30,000 on Wednesday, the highest since April 14, according to Coinmetrics data.
Market players attributed the surge to the news that U.S. wealth management giant BlackRock has applied for a spot bitcoin exchange-traded fund that tracks the market price of the underlying asset.
That may be part of the reason, but this massive move is due to other factors beyond the news flow surrounding major institutions taking steps towards adopting Bitcoin and other digital assets. could be.
Cryptocurrency “market depth” has remained at a very low level this year. Market depth refers to the market’s ability to absorb relatively large buy and sell orders. The market is shallow and when major players place buy and sell orders for digital coins, even if the order is not very large, the price can go up and down significantly.
Market depth is a measure of market liquidity.
According to data company Open height, Bitcoin market depth has decreased by 20% since the beginning of the year. According to Kaiko, Bitcoin is one of the hardest-hit cryptocurrencies in terms of market depth.
Bitcoin’s market depth in the 1% range from mid-price is down about 20% since the beginning of the year, according to data firm Silko.
Open height
“Bitcoin’s recent surge in value has been largely driven by large-scale transactions in illiquid markets,” Jamie Sly, head of research at CCData, told CNBC in an email. Told.
“Our analysis of market orders above 5 BTC reveals an aggressive spike in market buying, suggesting that major players are looking to gain exposure to digital assets.”
“Combining large orders with thin books exposes the market to more volatile movements,” Sly added.
This lack of liquidity is partly due to regulatory oversight of the cryptocurrency industry by US authorities. The Securities and Exchange Commission sued major exchanges like Coinbase and Binance.
Low liquidity, which has characterized the cryptocurrency market throughout the year, is also part of the reason for Bitcoin’s 80% year-to-date gain.
Another notable feature of the current cryptocurrency market is the low trading volume on exchanges.
According to cryptocurrency data website CoinGecko, the daily trading volume of cryptocurrencies is currently around $24 billion.
This is a significant drop from total bitcoin trading volume of over $100 billion at the peak of the 2021 cryptocurrency rally, when bitcoin climbed to a record high of nearly $69,000.
Large cryptocurrency investors typically hope that the initial price surge will be enough to get retail investors back into the rally, eventually pushing the price of Bitcoin and other digital coins higher. there is But that didn’t happen.
“What is noteworthy about this rise is that overall trade volume is at its lowest level in years and shows only a modest increase. Low,” said study director Clara Medalley. At Kaiko, he told CNBC.
“I think volume and price volatility are two of the most obvious indicators of cryptocurrency market activity. Not enough to attract.”
In the previous Bitcoin cycle, market momentum was largely driven by large institutional investors as investment banks from Morgan Stanley to Goldman Sachs set up trading desks to offer their clients exposure to digital currencies. was done.
But it wasn’t until retail traders started taking notice that the market really started to take off. In early 2021, people became tempted by the phenomenon of NFTs (Non-Fungible Tokens) and other more speculative bets.
Later that year, the cryptocurrency market experienced a seismic shift, sending the price of Bitcoin skyrocketing to unprecedented levels. According to CoinGecko, this is in tandem with a surge in trading volume, which rose from $21.2 billion in early 2020 to $105.4 billion on Nov. 9, 2021, when Bitcoin hit an all-time high.
Trading volumes currently fall short of the height of the crypto boom in 2021.
“Professional traders trade any news if it’s good, otherwise they don’t,” Carroll Alexander, a professor of finance at the University of Sussex, told CNBC.
“If there is a little bit of good news like Bitcoin ETFs, they fire a cannonball upwards.”
Following BlackRock’s ETF filing, Invesco and WisdomTree made similar moves, filing for their respective Bitcoin-related products.
“Both Bitcoin and Ether are manipulated this way by professional traders.
“Then they will sell the top, and you have a sideways market.”
In fact, Bitcoin has been trading within a range this year, thwarting any attempt to move higher significantly.
Alexander believes Bitcoin will likely trade in the $25,000 to $30,000 range for the rest of the summer.
However, she expects the cryptocurrency to rally towards $50,000 towards the end of the year, citing attempts by large market participants to prop up the market, with large purchases out of the ordinary. showing movement.
“This is not a consumer market, not really,” she warned.
Vijay Aiyar, vice president of international markets at Indian crypto exchange CoinDCX, told CNBC that the recent rise in Bitcoin prices may be driven by “long-term institutional investors.” .
Ayyar added that some of the market participants pushing the move include large funds and crypto-focused hedge funds.
“I don’t think this is going to boost retail that much because the recent backlash has drained it quite a bit,” he said.
Several cryptocurrency industry insiders have expressed hope that the market is nearing a “trough” when it could start rising again.
Recent price movements reflect activity in 2018, when both Bitcoin price and volume were subdued for several months before starting to rise again the following year.
However, CCData’s Sly said, “It is still too early to tell if the worst is over for Bitcoin.”
“The recent wave of interest from traditional financial institutions such as BlackRock, Citadel and Fidelity has instilled new optimism in the market,” he said.
“If the broader macro environment and equity markets remain favorable, it is possible that Bitcoin will maintain its current positive price trajectory.”
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