Anchin’s analysis: the possible increase in Bitcoin price volatility due to the decrease in liquidity

A review of the data shows that the Biden administration’s concerted efforts to disconnect the digital currency industry from the US banking system have had an impact on this market, leading to a decrease in Bitcoin liquidity in recent weeks and months.

According to Bitcoinsit, Barchart (Barchart) in the latest report self It notes that Bitcoin liquidity continues to decline, and the Bitcoin/Tether pair’s market depth has reached a 15-month low.

Market depth refers to the ability of the market to carry out large transactions without significantly affecting the price. This measure takes into account the total size and volume of open trades, bids, and bids.

CCData data shows that at the end of April, only 462 bitcoins, worth a little over $13 million, were enough to change the price of this asset by at least one percent. According to Barchart, this figure marks the lowest market depth for the Bitcoin/Teter pair since May 2022, when the price of Bitcoin plummeted in the wake of the Covid-19 pandemic crisis.

Material Indicators, one of the platforms providing market data, yesterday diagrammatic shared that Bitcoin whales are currently forced to split their large buy and sell orders into smaller orders due to the risk of price slippage due to low liquidity.

Material Indicators explained:

If you’re wondering why wallets with balances of $100-$1,000 (yellow color) are buying bitcoins and big whales (brown color) aren’t, it’s probably because retail investors behave differently than smart money. Because the liquidity between the current level and $29,100 is so small that the price deviation in the whale order can be significant. So, they literally have to do smaller orders.

According to Keiko, the trading volume of centralized exchanges has decreased in April (Frudin), after 3 consecutive months of increase until March (March) and crossing the levels before the collapse of FTX.

On the positive side, however, the total size of the cryptocurrency market is now significantly larger than it was before the 2022 bull market began. In addition, the quarterly trading volume on Coinbase, the largest exchange in the United States, has exceeded $140 billion in the past 3 quarters. Of course, this figure is still half of the average of 2021.

Kaiko also notes that Bitcoin and Ethereum liquidity are both near their one-year lows, a 2% market depth. One of the trends that the company points to is that perpetual futures are now increasingly causing price movement.

Conor Ryder, Keiko researcher, says:

Perpetual to spot trading volume ratio has reached its highest level in the last 2 years and price discovery is now underway in derivatives markets.

He adds:

There was a large accumulation of long positions in mid-April, but the number of short positions peaked as soon as liquidity dried up. The volume of open positions is decreasing, but since its combination with the price determines the amount of liquidity, there is still no clear trend. However, the data shows how futures are currently shaping prices.

At the time of writing this report, Bitcoin price is trading at $29,100 with a decrease of 0.75% compared to the previous day.