Bitcoin, the world’s largest digital currency, has experienced a significant rally this month, rising over 12% since the start of June. On Wednesday, its price surpassed $30,000, reaching its highest level since April 14, according to Coin Metrics data. While news of U.S. asset management giant BlackRock filing for a spot bitcoin exchange-traded fund (ETF) contributed to the price surge, there is another factor at play: thin market liquidity and the impact of large players.
The concept of “market depth” measures a market’s ability to handle substantial buy and sell orders. This year, crypto market depth has been low, and bitcoin has been particularly affected, with a 20% decline in market depth since the beginning of the year, according to data firm Kaiko. Jamie Sly, head of research at CCData, noted that bitcoin’s recent surge is largely driven by large trades in a less liquid market, indicating that significant players are seeking exposure to digital assets.
The low liquidity in the crypto market is partly due to regulatory scrutiny from U.S. authorities, such as the Securities and Exchange Commission’s lawsuits against major exchanges like Coinbase and Binance. Additionally, the current crypto market has seen notably low trading volumes, with daily trading volume in the cryptocurrency hovering around $24 billion, significantly lower than the peak of the 2021 crypto rally, which saw over $100 billion in daily trading volume for bitcoin.
Contrary to previous market cycles, retail traders have not yet reentered the crypto market in significant numbers, despite the rally in prices. Clara Medalie, director of research at Kaiko, highlighted that trading volumes and price volatility are key indicators of crypto market activity, and both are at multi-year lows. The surge in price alone has not been sufficient to attract traders.
Carol Alexander, a professor of finance at the University of Sussex, emphasized that the current market is driven by professional traders who only act upon positive news. She pointed out that bitcoin and ether are manipulated by professional traders who wait for good news to make their moves. This behavior has contributed to bitcoin trading within a range this year, with attempts to break significantly higher being thwarted.
While some industry insiders believe the market may be approaching a bottoming period and express renewed optimism due to the interest of traditional financial institutions, it is still too early to determine if the worst is over for bitcoin. The continued trajectory of bitcoin’s price will depend on the macroeconomic environment and equity markets, as well as the sustained interest from institutional investors.
As bitcoin continues to demonstrate its resilience and attract institutional interest, its price trajectory remains a topic of interest for market observers and participants alike. The crypto market’s evolution and the behavior of both retail and institutional investors will shape the future of digital currencies in the coming months.