Despite growing calls for a bitcoin rally, participation in the spot market is dwindling, leaving the market vulnerable to erratic price swings. The trading volume of bitcoin has recently dropped below $8 billion, according to Glassnode, marking its lowest point 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. Low volume environments often coincide with reduced market depth and increased sensitivity to changes in market flow, as noted by Glassnode.
Market depth, which is typically measured by examining 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 fluctuations of bitcoin, has dropped to a three-month low of below 42% annualized.
This suggests that traders are positioned for a calm market rather than anticipating turmoil. The Federal Reserve's interest rate decision later today is likely to be a key factor, with attention focused on the policy statement's stance on energy market disruptions and rising gas prices.
A hawkish statement could lead to a prolonged pause in rate reductions and potentially even rate increases, which would cap gains in risk assets. Analysts at Marex noted 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 highlighted the potential impact of energy politics on risk assets, citing the UAE's decision to leave OPEC and OPEC+. Bitcoin recently traded near $77,800, up over 1% in 24 hours, while other cryptocurrencies such as ether, solana, and XRP also saw 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 slowly.
The yield on the 10-year U.S. Treasury note is closely tracking swings in WTI crude prices, which could potentially destabilize financial markets, including cryptocurrencies, if crude prices rise further.