The crypto market of 2023 has been characterized by a relative lack of the volatility it is known for. Bitcoin is up 55% this year, yet its price has increased slowly and steadily.
However, over the past couple of weeks, volatility has increased. Two weeks ago, Bitcoin dropped from $29,000 to $26,000 in a span of 10 minutes, and then rose to $27,700 last Thursday. As of Saturday, it had fallen back to $25,900.
This heightened volatility can be attributed to a positive court ruling regarding the Grayscale Bitcoin Trust. The District of Columbia Court of Appeals ruled that the SEC was wrong to reject the proposed Bitcoin ETF without giving an explanation.
The SEC then asked for more time to review the numerous ETF applications that have come in lately. This caused the positive gains to be given up.
Low liquidity makes the crypto market ripe for large swings, but trading volume is currently suppressed. It is likely that volatility will soon return to its usual levels.
Order books are thinner now than they have been in a while, meaning less capital is needed to move prices. This could result in more extreme movements in both directions. Although crypto prices have recovered this year, volumes are still at multi-year lows and capital is leaving the market.
The crypto sector is known for its volatility, and it seems that this trait will continue. The recent bout of volatility may not be as extreme as what we have seen in the past, but it is a reminder that it still exists. As long as liquidity remains low, this increased volatility could persist.
