- Bitcoin’s price performance in recent weeks continues to raise concern.
- Traders appear increasingly uncertain of the asset’s price direction.
- Recent reports give a clearer picture of the driving force behind the asset’s intraday volatility.
Despite a strong showing in Q1 2023, Bitcoin’s price action in recent weeks has sparked concerns and raised eyebrows in some instances. The asset’s price has swung wildly, often erasing gains faster than they are made.
While Bitcoin’s price is off to a positive start this week, bouncing from below $26,000 over the weekend to nearly $27,500 at the time of writing, its price action has left traders unable to predict the asset’s price direction.
“What’s Bitcoin doing here? Anyone got a clue?” Prominent crypto trader “Duo Nine” tweeted on Monday, May 15, sharing Bitcoin’s daily price chart.
While Bitcoin’s price initially appeared to validate the head and shoulders chart pattern marked out by the seasoned trader, the price has taken a sharp U-turn before hitting the set target. The trader shared the trade idea on Friday, May 12, predicting a drop below $25,000 if validated. But Bitcoin’s sharp retreat after breaking the chart pattern’s neckline has now given the technical price analyst pause for thought.
Duo Nine is not the only seasoned trader stumped by the asset’s price moves. IncomeSharks asserted that another month of price action was needed to determine the direction of Bitcoin’s price.
FTX/Alameda and Banking Collapses Slash Crypto Liquidity
Liquidity refers to the ease with which an asset can be traded without significantly affecting its price. The lower the liquidity of an asset, the more volatile its price and the greater the vulnerability to manipulation.
Crypto market liquidity has tanked in recent months, spurred by the FTX/Alameda collapse in November 2022 and crypto-friendly banking collapses in March 2023, according to Kaiko research analyst Conor Ryder. The closure of 24/7 instant settlement services like Silvergate Bank’s Silvergate Exchange Network (SEN) and Signature Bank’s Signet has particularly impacted the ability of market makers to access USD settlements.
“Lack of instant settlement hurts capital efficiency,” Lumida Wealth Management Chief Executive Officer Ram Ahluwalia asserted in a Twitter thread highlighting the impact of the closure of instant settlement banking services on crypto market makers.
Concerns over crypto market liquidity have heightened following a Bloomberg report on May 9 that leading market makers Jump Crypto and Jane Street were scaling back their crypto trading operations over regulatory uncertainty.
On the Flipside
- No one can predict the direction of any market with 100% certainty.
- Some investors argue that liquidity concerns are overblown so long as on-chain liquidity continues to grow.
Why You Should Care
The broader crypto market is highly correlated with Bitcoin. The growing uncertainty over the direction of the asset’s price puts a cloud over the price performance of other digital assets.
Read this to learn more about the circumstances surrounding Bitcoin’s most recent wild swing:
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