We have witnessed a peculiar year for cryptocurrencies this 2023. Until now, Bitcoin has risen 55%. Nevertheless, it has been a slow and regular growth, instead of the typical free peaks and falls. Also, Bitcoin is not at the levels that we are familiar with, but it is not found in the historical minimums. Let us remember that Bitcoin fell from $ 29,000 to $ 26,000 just two weeks ago, including a 7% drop in a period of ten minutes. Last Thursday, 6% jumped, up to $ 27,700. Two days later, Bitcoin had given up those gains, trading at $ 25,900. The last two weeks’ price behavior is not intense according to Bitcoin standards but it denotes a closer idea of what we believe happened with this cryptocurrency.
The momentum gained last week was headed by a positive judicial ruling with respect to the Grayscale Bitcoin Trust. A panel of three judges of the Court of Appeals of the Columbia district in Washington ruled that the US Securities and Exchange Commission (SEC) was wrong to reject the Bitcoin ETF proposed by Grayscale without explaining its reasoning.
Nevertheless, since then those achievements have been abandoned. The SEC said late Thursday in a series of presentations that more time was needed to consider the large number of ETF applications that have been submitted in recent months.
As we said, unbridled volatility has been one of the presentation letters of this asset since its launch fourteen years ago, and even this recent episode is relatively lower and seems to be driven by the ETF news. That is why the year 2023 has been unusual: it was the absence of volatility before recent weeks that surprised more than its recent and abrupt increase.
Previous Levels of Volatility Ought to Return
Nonetheless, once again, this episode of volatility is nothing from the other world according to Bitcoin standards. In addition, the study of the market structure suggests that we should not expect moderate activity for too long.
Liquidity is one of the foremost reasons for this situation. Order books are as small as they have been in quite a time in Bitcoin markets. This means that less cash is required to move prices, amplifying both up and down movements.
A look through space shows that, although prices have recovered this year, the volumes remain at a minimum of several years and the capital continues to leave space.
The volume of operations and volatility go hand in hand. It makes sense, consequently, that we have seen the latter fall as investors removed money, going back into the risk curve amid difficult macroeconomic conditions.
On the other hand, the liquidity situation, combined with the inherent nature of cryptographic markets (and the fact that volatility has never disappeared for a long time) means that it would not be a surprise to see that moderate markets rise again. In the last two weeks, we have seen a movement in this direction, but in the great scheme of things, it is nothing compared to what we have seen in the past, or what we can see again in the future.
By Leonardo Pérez
