Despite growing calls for bitcoin to surge higher, participation in the spot market is dwindling, leaving the market vulnerable to erratic price movements. The trading volume of bitcoin has recently dropped below $8 billion, according to Glassnode, marking its lowest level since October 2023 when the cryptocurrency 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 BVIV index, which measures the expected 30-day price swings of bitcoin, has fallen to three-month lows below an annualized 42%. This suggests that traders are positioned for a calm market rather than a volatile one. The Federal Reserve's interest rate decision later today is likely to be a key factor in determining market trends.
While no change in interest rates is expected, 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 cuts and potentially even rate increases, capping gains in risk assets.
Analysts at Marex note that bitcoin is currently trading like a market that is hesitant to commit ahead of the Fed's decision, with cautious positioning and thinner liquidity. They also point out that the next major market impulse is likely to come from macroeconomic factors rather than crypto-specific events. The recent decision by the UAE to leave OPEC and OPEC+ has added to the uncertainty in energy markets, making risk assets more sensitive to headlines.
Bitcoin recently traded near $77,800, up over 1% in 24 hours, with other cryptocurrencies such as ether, solana, and XRP also posting 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 continues to lack bullish momentum, while yields on the 10- and two-year U.S. Treasury notes are rising slowly.
The close relationship between oil price volatility and asset prices is also worth noting, with the yield on the 10-year U.S. Treasury note closely tracking swings in WTI crude prices.
As the risk-free rate in traditional finance, the 10-year yield has a significant impact on interest rates across financial markets, and any further increase in crude prices could lead to destabilization in financial markets, including cryptocurrencies.