Despite growing calls for bitcoin to surge further, participation in the spot market is dwindling, leaving the market vulnerable to erratic price fluctuations. The trading volume of bitcoin has recently dropped below $8 billion, its lowest point since October 2023 when the cryptocurrency 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, often coincides with reduced market depth and increased sensitivity to changes in market flow. Market depth, a measure of liquidity that assesses the ability of the market to absorb large orders at stable prices, is typically evaluated by examining 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 currently do not seem to be factoring in this scenario, as indicated by the Volmex BVIV index, which measures the expected 30-day price swings of bitcoin and has dropped to three-month lows below an annualized 42%.
This calm outlook is particularly noteworthy given the upcoming interest rate decision by the Fed, which could have significant implications for risk assets if the policy statement takes a hawkish stance on growth and inflation risks. Analysts at Marex noted that bitcoin is currently trading cautiously ahead of the Fed's decision, with positioning and liquidity being thinner, making the market more susceptible to macro-driven impulses rather than crypto-specific factors. The energy market, particularly the recent decision by the UAE to leave OPEC and OPEC+, could be a significant curveball affecting risk assets. Bitcoin recently traded near $77,800, up over 1% in 24 hours, with other cryptocurrencies like ether, solana, and XRP seeing 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 remains below 100, lacking bullish momentum, while yields on the 10- and two-year U.S. Treasury notes continue to rise, albeit slowly.
The close correlation between the yield on the 10-year U.S. Treasury note and swings in WTI crude prices suggests that oil price volatility could have a significant impact on all assets, including cryptocurrencies.