important point
- Bitcoin fell 10% this week after firming in a range last month, its biggest move since the banking crisis
- Our head of research Dan Ashmore warns that volatility will soon return
- He wrote that more than 50% of stablecoins have left exchanges and order books are thinning.
- 5% Paying T-bill Draws Capital Out Of Space, Bitcoin Becomes More Open To Big Price Fluctuations
- Direction depends on interest rate policy, economy is at a critical time
Bitcoin The orange coin dropped 10% from just north of $30,000 to $27,200. But what’s remarkable about this price move is how unobtrusive it is.
Since the banking crisis subsided last month, Bitcoin has been held very tight, with very moderate daily movements compared to the usual extreme volatility. This relatively modest 10% move (Bitcoin printed a 10% candle seconds ago) is the biggest since Bitcoin rose as the banking crisis subsided and interest rate forecasts softened. will move.
In fact, plotting the average price movement over the past 30 days, the past month is now nearly flat, but history shows that it didn’t stay at that moderate level for long.
Volatility is definitely back this time around. This is because one of the main drivers of increased volatility is as prominent as ever in the Bitcoin market. It’s a lack of liquidity.
Less liquidity means less capital is needed to move the price. And now liquidity is at its thinnest in years.
Since Alameda left in the aftermath of the disaster FTX Collapse, the order book is shallow.Looking at stablecoin balances on exchanges is another indicator of this. deep dive Recently, we have been analyzing anomalous outflows of stablecoins from exchanges. 45% of total balances have fled exchanges in the last four months. The updated numbers are that over 50% of his stablecoins are gone since December.
In a world where interest rates are rising the fastest in recent memory while cryptocurrency yields are falling, perhaps this should come as no surprise. While the T-bill is currently paying over 5%, crypto investors have witnessed countless crashes in the space, including Celsius, Terra, and FTX, but sentiment has collapsed. , the market is full of fear.
With a 5.1% investment backed by the US government, who holds the risky stablecoins that flooded the market last year?
So while Bitcoin has been on a relatively peaceful path over the past month, the chart party will soon be back. Less liquidity means more volatility. In other words, if there is a market trigger, the price of Bitcoin is very likely to be more volatile than otherwise.
In fact, looking at the volatility index, we see that volatility is at its highest level since June 2022, although it has declined over the past two weeks. early this monthSo while price movements are canceling each other out as Bitcoin fluctuates within a narrow window, counterintuitively, volatility is still high.
Of course, the $1 trillion question is which way it will go.
I’m not smart enough to predict it with any degree of confidence in the short term, but whatever it does will depend on the macro situation. , the correlation is particularly high with the tech-rich Nasdaq.
The words of Jerome Powell and the Federal Reserve continue to matter, as financial markets remain heavily dependent on interest rates. By withdrawing the odds from Fed futures, the market seems to be betting the Fed will probably raise rates one more time before closing the show on tight monetary policy for this period.
As we saw with the banking crisis last month, this plan could change quickly. This is a macro environment of truly unprecedented nature, mixed with high inflation and generationally fast rate hikes, albeit coming from such a low base.
Risk assets will have their day again, but it’s just a question of when. It’s hard to say in the short term, but regardless of sentiment, don’t expect Bitcoin to sit dormant for very long.
