The year 2023 has been a strange one for crypto. The extreme volatility the sector has become so well known for has been lacking.
This is despite the price of Bitcoin being up 55% thus far this year. Yet rather than the usual spikes and freefalls, it has been a slow and gradual increase.
In the last couple of weeks, however, volatility has picked up. It is not quite at the levels we are accustomed to seeing, but it is no longer at all-time lows, either. Two weeks ago, Bitcoin fell from $29,000 to $26,000, including a 7% fall in a ten-minute span.
Last Thursday, it then jumped 6%, back up to $27,700. Two days later, it had given up those gains, trading at $25,900.
While the price action of the last two weeks is not dramatic by Bitcoin’s standards, it at least represents a closer picture to what we have come to expect from the asset.
The boost last week was led by a positive court ruling regarding the Grayscale Bitcoin Trust. A three-judge panel of the District of Columbia Court of Appeals in Washington ruled that the SEC was wrong to reject Grayscale’s proposed Bitcoin ETF without explaining its reasoning.
However, those gains have since been given up. The SEC said late Thursday in a series of filings that more time was needed to consider the slew of ETF applications which have been lodged in recent months.
As we said, rampant volatility has been one of the calling cards of this asset since it was launched fourteen years ago – and even this recent bout is relatively minor and seems to be driven by the ETF news. That is why 2023 has been unusual- it was the absence of volatility before the last couple of weeks that is more surprising than its recent abrupt increase.
Again, however, this bout of volatility is hardly anything to write home about by Bitcoin’s standards. Furthermore, studying the market structure suggests that we should not expect subdued activity for too long.
One of the prime reasons for this is liquidity. Order books are as thin as they have been in quite some time on Bitcoin markets. This means less capital is required to move prices, amplifying moves to both the upside and downside.
Looking across the space shows that while prices have rebounded this year, volumes remain at multi-year lows and capital continues to flow out of the space.
Trading volume and volatility come hand in hand. It makes sense, therefore, that we have seen the latter drop as investors have pulled capital, retreating on the risk curve amid tough macro conditions.
However, the liquidity situation, combined with the inherent nature of the crypto markets – and the fact that volatility has never gone away for long – means that it would not be a surprise to see the subdued markets ramp back up. The last two weeks have seen a move in this direction, but in the grand scheme of things, it is nothing compared to what we have seen in the past, nor what we may see once more in the future.
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