Important Considerations
- Bitcoin has seen a 10% decrease this week, its largest move since the banking crisis
- Dan Ashmore, Head of Research, warns of an impending return to volatility
- Over 50% of stablecoins have been removed from exchanges and orderbooks are shallow, leaving less necessary to move the price
- High-yield T-bills have pulled money from the crypto market, leaving Bitcoin more open to large price swings
- The direction of the market will depend on interest rate policy, with the economy at a crucial juncture
Bitcoin has recently experienced a 10% drop, trading from just over $30,000 down to $27,200. However, this price movement is surprisingly mild in comparison to the cryptocurrency’s typical extreme volatility. This 10% drop is the largest shift since the banking crisis subsided and Bitcoin rose due to falling interest rate forecasts.
The average of the last 30 days of price movements is close to flat, yet history suggests that this placid level will not remain for long. Dan Ashmore, our Head of Research, warns that volatility is soon to return. The lack of liquidity in the Bitcoin market is a key factor in this prediction; with less liquidity, it takes less money to move prices. At the moment, liquidity is at an all-time low.
The departure of Alameda from the market following the FTX collapse is one factor in the shallow order books. Furthermore, the outflow of stablecoins from exchanges has been quite remarkable; 45% of the total balance has left exchanges in the last four months, with the updated figure now surpassing 50% since December.
The current macro climate of high inflation and rapid rate hikes, though from a low base, has pushed investors towards T-bills with an interest rate of 5.1%, rather than hold onto a stablecoin with the risks associated with the crypto market.
Despite the quiet nature of Bitcoin in the last month, the volatility metrics indicate that the market is still considered high, with the highest readings since June 2022 earlier this month. If a trigger were to enter the market, the thin liquidity could lead to much larger price movements than usual.
The direction of the market will depend on interest rate policy, as Bitcoin has been linked to the stock market, specifically the tech-heavy Nasdaq. According to Fed futures, the Fed may be close to ending its period of tight monetary policy with one more rate hike.
This plan could change quickly, however, and risk assets may have their day again. It’s impossible to predict the short-term, but the sleepy Bitcoin market won’t stay that way for long.
