Bitcoin (BTC) has rallied considerably during the past 30 days, but not for reasons that most people would think.
The flagship cryptocurrency has surged over 12% since the start of this month. This past Wednesday, the BTC price surpassed $30,000 to notably reach its highest level since April 14, 2023, according to data from Coin Metrics.
Industry participants say that the Bitcoin price increase is due to the announcement that U.S. asset management firm BlackRock recently filing for a spot BTC exchange-traded fund (ETF) that’s tracking the market price of the underlying crypto-asset.
Although that might be part of the overall reason, the price surge can be put down to another major factor beyond the developments related to established institutions taking steps to adopt bitcoin or other crypto-assets.
Crypto market depth has been at significantly low levels in 2023. Market depth is essentially the market’s ability to handle considerably large buy/sell orders.
If the market depth is fairly low and major entities place in orders to purchase or sell of crypto tokens, prices may move in a major way, either up or down, even in the case that orders aren’t that large.
As per data from Kaiko, Bitcoin’s (BTC) market depth has dropped around 20% since the beginning of 2023. The leading crypto has been among of the hardest-hit virtual currencies when it comes to overall market depth, Kaiko revealed.
The market depth of BTC is at a 1% range from the mid price has fallen around 20% since the start of the year, data company Kaiko noted.
In statements shared with CNBC, Jamie Sly, Head of Research at CCData, said:
“Bitcoin’s recent surge in value has largely been driven by large trades within a less liquid market. Our analysis of market orders over 5 BTC reveals an aggressive surge in market buying, suggesting large players are seeking to gain exposure to digital assets. When combining large orders with thin books, the market is subject to more volatile movements.”
That apparent lack of liquidity has, at least in part, been due to the unprecedented regulatory scrutiny of the crypto sector from US regulators.
The US Securities and Exchange Commission (SEC) has sued large exchanges including Coinbase and Binance.
Low liquidity, which is a common trend of the crypto market throughout this year, is also partly behind bitcoin’s 80% YTD price surge.
Another key feature of the current cryptocurrency market is the relatively low volumes being traded on digital asset exchanges.
Daily trading volume in the flagship crypto presently sits at about $24 billion, according to data from CoinGecko.
That figure is down significantly from the $100B+ of total trading volume in BTC during the peak of the historic 2021 crypto bull market, when BTC reached an all-time high of almost $70K.
Major digital currency investors typically hope that an early price increase should be enough to motivate retail investors to get back into taking part in the rally that eventually leads to price surges for BTC as well as other crypto tokens. However, that has not actually happened.
Clara Medalie, director of research at Kaiko, told CNBC:
“What is notable about this rally is that trade volumes overall are at multi-year lows, and we are only seeing a slight increase, which even then is far lower than levels we saw from January to March. I think trading volumes and price volatility are two of the most telling indicators of crypto market activity. Both volatility and volumes are at multi-year lows, and even a rapid increase in price is not enough to draw traders in.”
In the past Bitcoin market cycle, sentiment/momentum had primarily been led by large, institutional players like investment banking institutions (Goldman Sachs, Morgan Stanley, others).
But the market actually started to make major moves at the time when retail participants began to realize what was going on — back in early 2021, individuals became interested in the new craze that was NFTs (nonfungible tokens) as well as other highly speculative investments.
At present, trading volume is not even close to where it had been at the peak of the 2021 crypto rally.
Carol Alexander, a professor of finance at the University of Sussex, told CNBC:
“Any bit of news, if it’s good, then the professional traders trade — otherwise, they’re not trading. If a bit of good news like the bitcoin ETF comes, they fire the cannons upwards.”
As reported, BlackRock’s ETF filing had been followed by WisdomTree, which has also filed for their Bitcoin-focused products.
Alexander added:
“Bitcoin and ether are both being manipulated in this way by the professional traders. They don’t trade most of the time, they wait until there’s a bit of good news. Then they’ll sell the top and you’ve got a sideways market.”
