Caroline Mauron, a market analyst at Orbital Markets, has predicted that Bitcoin will experience low liquidity despite the US Securities and Exchange Commission’s (SEC) review of several exchange-traded fund (ETF) applications. This forecast comes as the crypto market continues to grapple with the aftermath of the collapse of Alameda Research, which facilitated millions in trading volume.
Bitcoin traders are eagerly awaiting fresh capital inflows, as hopes for a further rally were dashed following a recent price correction that resulted in over $455 million in liquidations. Mauron anticipates heightened volatility during the holiday season, particularly in anticipation of the spot Bitcoin ETF decisions. “We expect to see further idiosyncratic volatility in the crypto asset class in the run-up to the ETF decision deadline in early January, which could be exacerbated by poor liquidity during the holiday period,” Mauron said.
The lower liquidity in the market could make it more difficult to sell cryptocurrencies, leading to wider bid-ask spreads and less market depth. This could potentially hinder sustained bullish rallies in the near future.
Historically, the amount of Bitcoin required to move its price by 1% has fluctuated significantly. In January, it would have taken over 1,400 BTC to achieve a 1% price movement, but by mid-November, this figure had decreased to around 752 BTC. This suggests a decrease in Bitcoin’s liquidity, indicative of the changing market dynamics.
Amidst these challenges, the approval of US spot Bitcoin ETFs could inject new capital into the industry. Investment firm VanEck has predicted that Bitcoin ETFs could attract inflows of over $40 billion within the first two years of trading, which could address the current liquidity issues in the cryptocurrency market.
Looking ahead, VanEck’s Head of Digital Assets Research, Matthew Sigel, anticipates that more than $2.4 billion will flow into newly approved US spot Bitcoin ETFs in Q1 2024, potentially keeping the Bitcoin price elevated and mitigating significant volatility.
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