Bitcoin
Bitcoin Faces Price Turbulence as Market Liquidity Falls, Says JPMorgan
Bitcoin Faces Price Turbulence as Market Liquidity Falls, Says JPMorgan
With liquidity falling in the bitcoin market, smaller trades can have a relatively large price impact.
Bitcoin’s falling market liquidity – how much is available for trades – is raising the risk of wild price swings, according to analysts at JPMorgan.
“Market liquidity is currently much lower for Bitcoin than in gold or the S&P 500, which implies that even small flows can have a large price impact,” Bitcoin’s falling market liquidity – how much is available for trades – makes it prone to wild price swings, JPMorgan’s Nikolaos Panigirtzoglou wrote in a note on Friday, as reported by Bloomberg.
While bitcoin (BTC, -6.41%) has rallied by over 300% since mid-October, the number of coins held in exchange addresses has declined by 6.6% to 2.38 million, according to Glassnode data. This sell-side liquidity shortage has been exacerbated by strong institutional demand, allowing the steep price rally to record highs over $58,000 Sunday.
The low liquidity is also evident from bitcoin’s average daily spot and futures market volume of $10 billion, which is just 10% of gold’s $100 billion, according to Panigirtzoglou. Hence, relatively few large buy or sell orders could lead to significant price moves either way.
Bitcoin’s three-month realized volatility, its level of actual price fluctuation over the past 90 days, stood at 92% on Sunday, the highest since June 9, 2020, according to Skew. Meanwhile, the three-month implied volatility, or investors’ expectations of price swings over the next 90 days, was 94%.
At press time, bitcoin is trading near $54,070, representing a 5.7% drop over 24 hours, according to CoinDesk 20 data.