Despite growing calls for bitcoin to surge higher, participation in the spot market is dwindling, leaving the market vulnerable to erratic price fluctuations. The trading volume of bitcoin has recently dropped to under $8 billion, according to Glassnode, marking its lowest point 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, 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 measured by analyzing buy and sell orders within 2% of the current price. When market depth decreases, it means that a few large orders can significantly impact prices, potentially boosting market volatility. However, options traders do not seem to be considering this scenario at present, as indicated by the Volmex's BVIV index, which measures BTC's expected 30-day price swings and has dropped to three-month lows below an annualized 42%. Traders are positioned for calm, not turmoil, which is notable given the Fed's upcoming interest rate decision.
The policy statement's stance on energy-market disruptions and rising gas prices will be closely watched, as a hawkish statement could lead to a prolonged pause in rate reductions and potentially even rate increases, capping gains in risk assets. The current market environment is cautious, with liquidity thinner and the next impulse likely to come from macro factors rather than crypto-native ones. The big macro curveball is energy politics, and if energy becomes less predictable, risk assets may remain sensitive to headlines. BTC recently traded near $77,800, up over 1% in 24 hours, with other cryptocurrencies like ether, solana, and XRP also adding similar amounts.
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 stay below 100, lacking bullish momentum, while yields on the 10- and two-year U.S. Treasury notes continue to rise slowly.