Monat: September 2023

Key Takeaways

• The last two weeks have seen increased volatility in the crypto markets
• Bitcoin fell from $29,000 to $26,000 two weeks ago before bouncing back briefly, only to fall again
• Thin liquidity means the market is ripe for big moves, but trading volume remains suppressed
• The future should see a return to the volatility the market has come to expect

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. 

Volatility should return to prior levels

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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• Bitcoin and other altcoins continued falling on Wednesday.

• The US dollar index continued rallying as crude oil price jumped.

• There are signs that the Fed will continue hiking rates.

Bitcoin Cash, Stacks, Neo, Solana, and Stellar lumens price drifted downwards as a sense of fear engulfed the financial market. Most of these coins dropped by more than 3% on Wednesday as demand remained significantly low.

The main catalyst for the sell-off was the recent trends in the energy market. Brent, the international benchmark, surged to over $90 per barrel. It has soared by over 25% from the lowest level in June and some analysts see it rising to $100 in the coming weeks.

The rising oil prices mean that the Federal Reserve could maintain its hawkish tone in the coming months. Economists have a mixed feeling about what to expect. Some of them expect the bank to hike rates by another 0.25% this month and push them to 5.75%.

Other analysts believe that the Fed will leave rates intact as officials wait for more details about inflation. This view was supported by Christopher Waller, one of the most hawkish Federal Reserve officials.

The rising expectation of another Fed hike has pushed many investors to the safety of the US dollar. Data shows that the dollar index has surged to more than $104, the highest level in more than five months.

As I wrote in this article on Tuesday, cryptocurrencies tend to have an inverse relationship with the US dollar. In most periods, coins like Bitcoin and Ethereum tend to retreat when the DXY index is soaring.

Solana and Stellar prices retreated even after a dose of good news from Visa, the biggest fintech company in the world. In a statement on Tuesday, the company said that it would expand its USDC expansion to Solana’s ecosystem. Solana is known for its fast speeds and low transaction costs.

Visa hopes to use this technology in its business of processing billions of dollars every day. This news impacted Stellar because USDC is built using its technology.

The outlook of Bitcoin and other altcoins is relatively bearish for now since there is no major catalyst in the near term. A likely catalyst will be the eventual acceptance of a Bitcoin ETF by the SEC. This is highly likely now that GreyScale won a major lawsuit last week.

How to buy Bitcoin Cash

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