Why Bitcoin Liquidity May Remain Low Ahead of ETF Approval
Caroline Moron of Orbital Markets predicts that Bitcoin will experience low liquidity. This is despite the US Securities and Exchange Commission (SEC) reviewing several exchange-traded fund (ETF) applications.
One of the main reasons is that the crypto market is still suffering from the failure of Alameda Research, which facilitates millions of trades.
Bitcoin traders expect fresh capital gains.
Those hoping for a further rally were disappointed, especially after the recent Bitcoin price correction resulted in more than $455 million in liquidity. According to Caroline Moron, the holidays are characterized by high volatility ahead of Bitcoin ETF decisions.
“We expect to see more volatility in the crypto asset class as the ETF decision deadline approaches in early January, which could be exacerbated by poor liquidity during the holiday season,” Mauron said.
Low liquidity means it can be difficult to sell cryptocurrencies due to a lack of counterparties. Therefore, bullish rallies cannot be sustained due to bid expansion and less market depth.
Read more: How to prepare for a Bitcoin ETF: A step-by-step approach
In January, it took more than 1,400 BTC to move the price of Bitcoin by 1%. At the end of April, this number dropped to 462 BTC. This represents a significant decrease in the amount of Bitcoin in Q2 by $10 million.
In mid-November, 752 BTC were needed to achieve a 1% price movement, indicating that the amount of BTC to move the price by 1% has decreased since January, indicating less market flow than at the beginning of the year.
However, the approval of US spot Bitcoin ETFs could bring new money to the industry. A recent report by investment firm VanEck predicted that Bitcoin ETFs could see more than $40 billion in inflows in their first two years of trading. This injection of capital could significantly improve the lack of funds in the cryptocurrency market.
“We expect more than $2.4 billion in newly approved U.S.-based Bitcoin ETFs in Q1 2024 to boost the price of Bitcoin. While significant volatility is possible, Bitcoin price is unlikely to fall below $30,000 in Q1 2024. writes Matthew Siegel, VanEck's head of digital assets research.
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