Since the commencement of June, bitcoin's price has increased by more than 12%. The growth has been connected to reports that BlackRock had requested a bitcoin ETF. Analysts are of the opinion, however, that the main influence on the world's premier digital currency are large acquisitions by 'bitcoin whales' in a market with poor liquidity. This, they say, is causing the significant movements in the cryptocurrency's cost.
This month has seen Bitcoin's sharp rally, but not for the reasons you'd expect. Over the course of June, the world's largest cryptocurrency has shot up by more than 12%, with its price surpassing the $30,000 mark on Wednesday - the peak since April 14.While the media has attributed the surge to the news of U.S. asset management firm BlackRock's filing for a spot bitcoin exchange-traded fund, the huge increase may have more to do with other components outside of the new influx of big businesses looking to get involved with bitcoin or other digital assets.
Crypto market depth has stayed at low levels this year. Market depth looks at a market's aptitude to take in sizable orders to buy or sell digital coins. When market depth is low and larger traders submit orders, it can result in large ups or downs in prices even if the orders are not that large. Market depth is an indicator of a market's liquidity. Reports from data provider Kaiko show that bitcoin's market depth has dropped 20% since the start of this year, making it one of the most affected cryptocurrencies in terms of market depth.
Jamie Sly, head of research at CCData, noted via email to CNBC that Bitcoin's recent increase in value has been largely caused by trades in a less liquid market. Sly continued, saying that their research of orders higher than 5 BTC displays a sharp rise in buying, indicating that big players may be trying to get exposure to digital assets. Additionally, Sly pointed out that this lack of liquidity has been spurred on by the regulatory issues posed by United States authorities. Furthermore, this absence of liquidity has contributed to Bitcoin's 80% increase in value this year.
The present crypto market is distinguished by its low trade amounts.CoinGecko, a crypto data website, reveals that the everyday turnover of cryptocurrency is roughly $24 billion.
The crypto rally in 2021 pushed the price of bitcoin close to a record high of nearly $69,000, however, the overall trading volume of bitcoin was much lower than the more than $100 billion seen at the peak. Crypto investors typically look to spark a surge in prices as an incentive to attract retail investors and raise prices for bitcoin and other virtual coins. Nevertheless, this has not occurred. Clara Medalie, director of research at Kaiko, remarked to CNBC that "What is significant about this rally is that trade volumes overall are at multi-year lows, and only a minor rise has been observed, which is much lower than the amounts observed from January to March." Medalie continued, "I think trade volumes and cost volatility are two of the primary indicators of crypto market movement. Both volatility and volumes are at multi-year lows, and even a big increase in price is not sufficient to attract traders."
The previous bitcoin cycle saw big institutional names like Morgan Stanley and Goldman Sachs setting up trading desks to offer their customers cryptocurrency exposure. However, things really began to take off once retail traders bought in, captivated by NFTs and other more speculative investments. This drove the cryptocurrency market to its peak in November 2021 when bitcoin's value reached a record high alongside a staggering trading volume of $105.4 billion, as reported by CoinGecko. Since then, trading activity has not returned to those levels. When asked to explain this phenomenon, Professor of Finance at the University of Sussex Carol Alexander 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". Following BlackRock's move to file an ETF, firms such as Invesco and WisdomTree also applied for their own bitcoin-related products.
Alexander commented that professional traders manipulate Bitcoin and ether in this way: they are not trading frequently, but rather waiting for a bit of good news before selling the top, which leads to sideways market movements. She pointed out that this has been true of bitcoin this year, with attempts to soar higher unsuccessful. When asked where she thought the price of bitcoin would go in the remainder of the summer, Alexander predicted it would be between $25,000 and $30,000. However, Alexander indicated that by the end of the year she expects the price of the cryptocurrency to aim for $50,000 with larger investors propping up the market by making big purchases. She warned that given this environment, it is not a market suitable for ordinary clients.
Vijay Ayyar, CoinDCX's VP of international markets, revealed to CNBC that he believes the recent surge in bitcoin's value is mostly attributable to "long term institutional buyers." According to Ayyar, big funds and crypto hedge funds are backing the rally. He stated, "I don't think this is as much of a retail push, since retail was quite flushed out during the recent pullback." Many in the crypto space feel the market might soon turn around and gain momentum, reminiscent of 2018 when bitcoin's price and volumes were still for some time before they began to increase again the year thereafter. On this development, CCData's Sly commented, "It is still too early to say whether the worst is over for bitcoin." He continued, "The recent wave of interest from conventional monetary institutions, such as Blackrock, Citadel, and Fidelity is renewing the optimism in the market. Given the ongoing favorable macro atmosphere and stock exchange, it is possible that bitcoin could maintain its current optimistic price trajectory." WATCH: Can ethereum overtake bitcoin as the crypto monarch?
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