Despite growing calls for a bitcoin rally, participation in the spot market is dwindling, leaving the market vulnerable to unpredictable price movements. The trading volume of BTC has recently dropped below $8 billion, its lowest point since October 2023 when bitcoin was valued at less than $40,000, according to data from Glassnode. This significant decline in volume, which has been ongoing since reaching highs of over $25 billion in early February, suggests a reduction in market depth and increased sensitivity to changes in market flow.
Market depth, a key indicator of liquidity, is typically measured by analyzing buy and sell orders within 2% of the current price. When market depth decreases, it becomes easier for large orders to significantly impact prices, potentially leading to heightened market volatility.
However, options traders do not appear to be factoring in this scenario at present, as indicated by the Volmex BVIV index, which measures expected 30-day price swings for BTC and has dropped to three-month lows below an annualized 42%. This calm outlook is notable, especially given the impending Federal Reserve interest rate decision, which may have significant implications for risk assets.
A hawkish policy statement could lead to a prolonged pause in rate cuts and potentially even rate increases, thereby capping gains in risk assets. Analysts at Marex noted that bitcoin is currently trading cautiously ahead of the Fed decision, with positioning and liquidity thinner than usual, making the market more susceptible to macro-driven impulses rather than crypto-specific factors.
The recent decision by the UAE to leave OPEC and OPEC+ has introduced an element of unpredictability in energy politics, which could impact risk assets. Bitcoin recently traded near $77,800, up over 1% in 24 hours, with other major cryptocurrencies such as ether, solana, and XRP experiencing similar gains.
The CoinDesk Memecoin Index led the market with 3% gains, followed by the Computing Select Index, which rose 2.7%. In traditional markets, the Dollar Index remained below 100, lacking bullish momentum, while yields on 10- and two-year U.S. Treasury notes continued to rise slowly.
The close relationship between oil price volatility and the yield on the 10-year U.S. Treasury note is a key factor to watch, as changes in crude prices can have far-reaching implications for financial markets, including cryptocurrencies.