Despite growing calls for a bitcoin rally, participation in the spot market is dwindling, leaving the market vulnerable to erratic price fluctuations. The trading volume of BTC has recently dropped below $8 billion, according to Glassnode, marking the lowest level since October 2023 when bitcoin was valued at less than $40,000. This significant decline in volume, which has been ongoing since reaching highs above $25 billion in early February, may lead to increased market volatility.
Market depth, a measure of liquidity, is also shrinking, making the market more sensitive to large orders and potential price swings. The Volmex BVIV index, which measures expected 30-day price swings for BTC, has dropped to three-month lows below an annualized 42%, indicating that traders are not anticipating turmoil. However, with the Fed set to announce interest rates later in the day, a hawkish statement could lead to a prolonged pause in rate reductions and potentially even rate increases, capping gains in risk assets. Analysts at Marex note that bitcoin is 'sitting around 77k and trading like a market that does not want to commit ahead of the Fed,' with cautious positioning, thinner liquidity, and a higher likelihood of the next impulse coming from macro factors rather than crypto-native ones.
The energy market, particularly the recent decision by the UAE to leave OPEC and OPEC+, may also impact risk assets. As of recent trading, BTC is near $77,800, up over 1% in 24 hours, with other cryptocurrencies like ether, solana, and XRP also experiencing similar gains. The CoinDesk Memecoin Index is leading the market higher, with 3% gains, followed by the Computing Select Index, which is up 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 slowly.
The close relationship between the 10-year U.S. Treasury note yield and WTI crude prices suggests that oil price volatility may hold the key to the performance of all assets, potentially destabilizing financial markets, including cryptocurrencies, if crude prices rise further.