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, its lowest level since October 2023 when bitcoin was valued at less than $40,000, according to data from Glassnode. This significant decline in volume, which has been falling since reaching highs above $25 billion in early February, could lead to reduced market depth and increased sensitivity to changes in market flow. As a result, the declining volume might amplify market volatility, although options traders do not seem to be factoring in this possibility at present.
The BVIV index, a measure of BTC's expected 30-day price fluctuations, has dropped to three-month lows below an annualized 42%, indicating that traders are positioned for a calm market rather than anticipating turmoil. This is particularly noteworthy as the Fed is set to announce interest rates later today, with the policy statement expected to provide insight into the impact of energy-market disruptions and rising gas prices on growth and inflation risks.
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 trading like a market that does not want to commit ahead of the Fed,' with positioning being cautious and liquidity thinner.
They also highlight that the next market impulse is more likely to come from macroeconomic factors than crypto-specific events. The recent decision by the UAE to leave OPEC and OPEC+ has added to the uncertainty in energy politics, making risk assets more sensitive to headlines.
BTC is currently trading near $77,800, up over 1% in the past 24 hours, with other major cryptocurrencies also experiencing similar gains. 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 relationship between the yield on the 10-year U.S.
Treasury note and swings in WTI crude prices suggests that oil price volatility could hold the key to the performance of all assets, including cryptocurrencies.