Despite growing calls for a bitcoin rally, participation in the spot market is dwindling, leaving the market vulnerable to erratic price movements. The trading volume of BTC has recently dropped to under $8 billion, according to Glassnode, marking the lowest level since October 2023 when bitcoin was valued at less than $40,000.

This decline in volume has been ongoing since it peaked above $25 billion in early February. Glassnode notes that such low-volume environments often coincide with reduced market depth and increased sensitivity to changes in market flow.

Market depth, which is typically measured by analyzing buy and sell orders within 2% of the current price, is a key indicator of liquidity. When market depth decreases, it means that large orders can significantly impact prices, potentially leading to increased market volatility.

However, options traders do not seem to be factoring in this scenario at present. The Volmex BVIV index, which measures the expected 30-day price swings of BTC, has dropped to three-month lows below an annualized 42%, indicating that traders are positioned for a calm market rather than turmoil. This is particularly notable given the Fed's upcoming interest rate decision, which is expected to have a significant impact on the market. While no change in interest rates is anticipated, the policy statement's comments on energy-market disruptions and rising gas prices will be closely watched.

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 currently trading cautiously ahead of the Fed's decision, with positioning cautious and liquidity thinner. They also highlight the potential impact of energy politics on risk assets, citing the UAE's recent decision to leave OPEC and OPEC+. Bitcoin recently traded near $77,800, up over 1% in 24 hours, with other cryptocurrencies such as ether, solana, and XRP also seeing similar gains.

The CoinDesk Memecoin Index led the market higher, 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. The close relationship between oil price volatility and the 10-year U.S.

Treasury note yield is also worth noting, as it has significant implications for financial markets, including cryptocurrencies.