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Bitcoin Liquidity Likely to Remain Thin During Holidays, Says Analyst

2 mins
Updated by Bary Rahma
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In Brief

  • Caroline Mauron of Orbital Markets thinks Bitcoin will trade in a thin market before next year's anticipated ETF approvals.
  • A recent price change caused by profit-taking reminded Bitcoin traders that the market is still illiquid as it awaits ETFs.
  • VanEck guesses that ETF approvals could invite $2 billion in inflows in their first quarter and $40 billion over two years.
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Caroline Mauron of Orbital Markets predicts that Bitcoin will experience low liquidity. This is despite the US Securities and Exchange Commission’s (SEC) review of several exchange-traded fund (ETF) applications.

One of the main reasons is that the crypto market is still suffering from the collapse of Alameda Research, which facilitated millions in trading volume.

Bitcoin Traders Await Fresh Capital Inflows

Those hoping for a further rally were disappointed, especially after the recent Bitcoin price correction generated over $455 million in liquidations. Caroline Mauron said the holidays will likely be characterized by even higher volatility ahead of the spot Bitcoin ETF decisions.

“We expect to see further idiosyncratic volatility in the crypto asset class in the run-up to the ETF decision deadline in early January, which could be exacerbated by poor liquidity during the holiday period,” Mauron said.

Lower liquidity means it could become more difficult to sell cryptocurrencies due to a shortage of counterparties. Therefore, bullish rallies may not be sustained due to wider bid-ask spreads and less market depth.

Read more: How To Prepare for a Bitcoin ETF: A Step-by-Step Approach

Bitcoin Liquidity
Crypto Market Makers Liquidity. Source: Kaiko Research

In January, it would have taken over 1,400 BTC to move Bitcoin’s price by 1%. By the end of April, this figure dropped to 462 BTC. This indicates a significant decrease in Bitcoin’s liquidity by $10 million in Q2.

By mid-November, around 752 BTC was required to achieve a 1% price movement, showing a reduction in the amount of BTC needed since January to move prices by 1%, indicative of lesser market liquidity than at the start of the year.

Nonetheless, approving US spot Bitcoin ETFs could bring new money into the industry. A recent report by investment firm VanEck predicted that Bitcoin ETFs could see inflows of over $40 billion over the first two years of trading. This capital injection could significantly improve the lack of liquidity in the cryptocurrency market.

“We expect more than $2.4 billion will flow into newly approved US spot Bitcoin ETFs in Q1 2024 to keep the Bitcoin price elevated. Notwithstanding the possibility of significant volatility, the Bitcoin price is unlikely to fall below $30,000 in Q1 2024.” wrote Matthew Sigel, VanEck’s Head of Digital Assets Research.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...
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