Bitcoin Traders Await Fresh Capital Inflows
Bitcoin traders are eagerly awaiting fresh capital inflows as the cryptocurrency market continues to experience low liquidity. This can be attributed to the collapse of Alameda Research, which has had a significant impact on trading volume.
However, those hoping for a further rally were disappointed after a recent Bitcoin price correction resulted in over $455 million in liquidations. Caroline Mauron, an analyst at Orbital Markets, predicts that volatility will remain high during the holidays, especially leading up to the spot Bitcoin ETF decisions in early January.
“We expect to see further idiosyncratic volatility in the crypto asset class in the run-up to the ETF decision deadline in early January, which could be exacerbated by poor liquidity during the holiday period,” Mauron said.
The low liquidity in the market makes it more difficult to sell cryptocurrencies due to a shortage of counterparties. This results in wider bid-ask spreads and less market depth, making it challenging for bullish rallies to be sustained.
Declining Bitcoin Liquidity
Data shows that Bitcoin’s liquidity has been declining throughout the year. In January, it would have taken over 1,400 BTC to move Bitcoin’s price by 1%, but by April, this figure dropped to 462 BTC. By mid-November, around 752 BTC was required for a 1% price movement. These numbers indicate a significant decrease in Bitcoin’s liquidity over time.
Potential Boost from Bitcoin ETFs
While low liquidity remains a concern, there is hope that the approval of US spot Bitcoin ETFs could bring new money into the industry and address this issue. According to a report by investment firm VanEck, Bitcoin ETFs could attract inflows of over $40 billion in the first two years of trading. This influx of capital has the potential to significantly improve liquidity in the cryptocurrency market.
“We expect more than $2.4 billion will flow into newly approved US spot Bitcoin ETFs in Q1 2024 to keep the Bitcoin price elevated. Notwithstanding the possibility of significant volatility, the Bitcoin price is unlikely to fall below $30,000 in Q1 2024,” wrote Matthew Sigel, VanEck’s Head of Digital Assets Research.
Hot Take: Bitcoin Liquidity Concerns Remain, ETF Approval Could Provide Relief
The crypto market continues to face challenges with low liquidity, making it difficult to sell cryptocurrencies and sustain bullish rallies. The collapse of Alameda Research and recent price corrections have exacerbated these concerns. However, there is optimism that the approval of US spot Bitcoin ETFs could inject much-needed capital into the industry and improve liquidity. If VanEck’s predictions are accurate, with inflows of over $40 billion expected in the first two years of trading, this could alleviate some of the liquidity issues and potentially support Bitcoin’s price. Overall, while low liquidity remains a hurdle, the introduction of Bitcoin ETFs offers a glimmer of hope for traders and investors.
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