Bitcoin (BTC) is up 12% this month in part due to low liquidity [Advance Cash ]

Menu Icon
  • Bitcoin price is up over 12% since early June.
  • Investors attributed the jump to news that BlackRock had filed for a spot bitcoin ETF.
  • The most likely thing moving bitcoin, however, is large purchases by so-called bitcoin “whales” as liquidity remains low.
  • According to analysts, this causes large swings in the price of the world's first digital currency.

Andriy Onufriyenko | time | Getty Images

Bitcoin has risen sharply this month – but not for any reasons you might think.

The world's largest digital currency is up more than 12% since early June. On Wednesday, its price rose above $30,000 to its highest level since April 14, according to data from Coin Metrics.

Market participants attributed the jump to news that US asset management giant BlackRock had filed for a spot bitcoin exchange-traded fund following the market price of the underlying asset.

While that may be part of the reason, the outsized move can be attributed to another factor beyond the news flow surrounding major institutions taking steps to adopt bitcoin or other digital assets.

Crypto "depth of the market" has remained at very low levels this year. Market depth refers to the ability of a market to absorb relatively large buy and sell orders. When the depth of the market is shallow and large players place orders to buy or sell digital coins, prices can rise or fall significantly, even if the orders are not that huge.

Market depth is a measure of the liquidity of a market.

According to data firm Kaiko, bitcoin market depth has fallen 20% since the start of this year. Bitcoin has been one of the hardest hit cryptocurrencies in terms of market depth, Kaiko said.

Bitcoin's market depth within 1% range of the average price has fallen about 20% since the start of the year, according to data firm Kaiko.


"Bitcoin's recent rise in value has largely been due to large transactions in a less liquid market," Jamie Sly, head of research at CCData, told CNBC via email.

“Our analysis of market orders over 5 BTC reveals an aggressive increase in buying in the market, suggesting that big players are looking to gain exposure to digital assets.”

“When you combine large orders with thin books, the market is subject to more volatile movements,” Sly added.

This lack of liquidity was partly driven by the regulatory scrutiny of the crypto industry by US authorities. The Securities and Exchange Commission has sued major exchanges such as Coinbase and Binance.

Low liquidity, which has been a feature of the crypto market all year, is also partly behind bitcoin's 80% year-to-date rally.

Another notable feature of the current crypto market is the low volumes traded on exchanges.

Daily trading volume in the cryptocurrency currently sits at around $24 billion, according to crypto data website CoinGecko.

That's significantly down from the over $100 billion in global bitcoin trading volume at the peak of the 2021 crypto rally, when bitcoin hit an all-time high of nearly $69,000.

Big crypto investors are generally hoping that an early price surge will be enough to entice retail investors to re-enter the rally, which will ultimately boost the prices of bitcoin and other digital coins. But that didn't happen.

"What's remarkable about this rally is that overall trading volumes are at multi-year lows, and we're only seeing a slight increase, which is even then well below levels that we saw from January to March," said research director Clara Medalie. in Kaiko, CNBC told.

“I think trading volumes and price volatility are two of the most telling indicators of crypto market activity. Volatility and volumes are at multi-year lows, and even a rapid price increase is not enough to attract traders."

During bitcoin's last cycle, market momentum was largely driven by big institutional names, with investment banks from Morgan Stanley to Goldman Sachs setting up trading desks to give their clients exposure to the digital currency.

However, the market only really started to explode when retail traders started taking notice – in early 2021 people were tempted by the phenomenon of NFTs, or non-fungible tokens, and others. more speculative bets.

Later that year, the cryptocurrency market experienced a seismic rally, with the price of bitcoin reaching all-time highs. This was accompanied by an increase in trading volume, which rose from $21.2 billion at the start of 2020 to $105.4 billion on November 9, 2021, when bitcoin hit its all-time high, according to CoinGecko.

Today, trading volume is a far cry from what it was at the height of the crypto boom in 2021.

"Any news, if it's good, then professional traders trade - if not, they don't trade," Carol Alexander, professor of finance at the University of Sussex, told CNBC.

“If good news like the bitcoin ETF comes, they fire the guns up.”

BlackRock's ETF filing was followed by a similar move from Invesco and WisdomTree, who also filed their own respective bitcoin-related products.

"Both bitcoin and ether are manipulated in this way by professional traders. They don't trade most of the time, they wait for good news," Alexander said.

“Then they will sell the top and you will have a sideways market.”

Indeed, bitcoin has traded in a range this year, and attempts to break out significantly higher have been thwarted.

Alexander thinks bitcoin will likely trade in a range between $25,000 and $30,000 for the rest of the summer.

She, however, expects that towards the end of the year the cryptocurrency will surge towards $50,000, citing attempts by larger market players to prop up the market, with big buys making outsized moves.

"This is not a market for ordinary customers. It really isn't," she warned.

Vijay Ayyar, vice president of international markets at Indian crypto exchange CoinDCX, told CNBC that he suspects bitcoin's latest price rally is driven more by "long-term institutional buyers."

Big funds and crypto-focused hedge funds are among the market players driving the action, Ayyar added.

"I don't think it's as much of a retail push as retail has been pretty flushed out in the recent pullback," he said.

Several crypto industry insiders have expressed hope that the market is approaching a “bottom” period where it can start rising again.

The recent price action echoes activity in 2018, when bitcoin price and volumes were subdued for several months before starting to rise again the following year.

However, CCData's Sly said it was "still too early to tell if the worst is over for bitcoin."

"The recent flurry of interest from traditional financial institutions, like Blackrock, Citadel and Fidelity, is instilling renewed optimism in the market," he said.

“If the broader macroeconomic environment and equity markets continue to be supportive, it is possible that bitcoin could maintain its current positive price trajectory.”

SHOW: Can Ethereum overthrow bitcoin as king of crypto?