Crypto prices are on the rise, with Bitcoin up 20% in the last three weeks. This surge in optimism has been driven largely by the filing of a number of high-profile Bitcoin ETFs. However, a look under the hood reveals some concerning trends. Alongside low liquidity, the regulatory environment remains uncertain, with both Coinbase and Binance facing potential legal action.
The macro picture is also of concern, with the Fed having recently paused its rate hiking cycle, although the market still expects this to continue.
Fear and Greed index currently stands at 61, indicating a strong level of greed in the market. But is a 20% jump justified? The SEC has declared the recent filings as “inadequate” according to the Wall Street Journal, suggesting that the process to get a spot ETF approved is not a straightforward one.
Centralised exchange volumes for the past three months were the lowest since 2020, while the total balance of stablecoins across exchanges has fallen a staggering 60% in the past six months.
Liquidity remains low and this could be exacerbating moves both to the upside and downside. Derivatives markets are showing more resilience however, with volumes being up on the second half of 2022.
The legal battles between Coinbase and Binance are also worth monitoring, as the decisions made in the coming months could have a significant impact on the space.
Overall, the recent wave of positivity may be justified when considering the filing of the ETFs, but there are plenty of reasons to be cautious. The macro picture is uncertain, liquidity remains low and the regulatory environment is still a major source of risk, with no guarantee that the ETFs will even be approved.
