Bitcoin’s value has substantially increased this month, reaching its highest level since April 2021. While BlackRock’s announcement of filing for a Bitcoin exchange-traded fund might have played a role in this price surge, other market dynamics could also contribute to this upward trend.
Bitcoin has experienced a surge of over 12 percent since the start of June. Its price reached a milestone of surpassing $30,000 on Wednesday, marking its highest level since April 14, per Coin Metrics data.
As previously mentioned, the price surge has been attributed — at least in part — to the BlackRock development. However, apart from the impact of institutional developments, another critical factor contributes to the substantial price increase: the limited liquidity and market depth within the cryptocurrency market.
Since the start of the year, Bitcoin has seen a 20 percent decrease in market depth, according to data firm Kaiko. It also revealed that this decline in market depth had been more affected by Bitcoin than by other cryptocurrencies.
Jamie Sly, head of research at CCData, attributed the recent surge in Bitcoin’s value to significant trades within a market with lower liquidity. Sly noted that their analysis of market orders surpassing 5 BTC uncovered a significant upswing in aggressive market buying. It indicates “large players are seeking to gain exposure to digital assets.”
He also said that combining large orders with limited trading activity heightens the potential for greater price volatility in the market.
Low trading volumes continue
The low volumes traded on exchanges are another prominent feature of the current cryptocurrency market. CoinGecko reported that cryptocurrencies’ current daily trading volume is approximately $24 billion.
This number is lower than the trading volume during the peak of the 2021 crypto rally. At that time, Bitcoin reached an all-time high of $69,000, and the trading volume in Bitcoin exceeded $100 billion.
Large cryptocurrency investors anticipate that an initial price surge during a rally would attract retail investors and lead to further price increases for Bitcoin and other digital coins. However, this expectation has yet to be met.
Clara Medalie, the director of research at Kaiko, highlighted the significance of the current rally by pointing out that trade volumes are currently at multi-year lows. Even though there has been a slight increase in trade volumes, it is still lower than the levels observed from January to March.
“I think trading volumes and price volatility are two of the most telling indicators of crypto market activity. Both volatility and volumes are at multi-year lows, and even a rapid increase in price is not enough to draw traders in.”
Clara Medalie, Kaiko director of research
Prominent institutional players, such as investment banks like Morgan Stanley and Goldman Sachs, exerted significant influence on the market’s momentum during the previous cycle of Bitcoin. These institutions established trading desks to offer their clients opportunities for investment and engagement with digital currency.
The market experienced a significant breakthrough when retail traders began to pay attention. This breakthrough occurred in early 2021 when the emergence of nonfungible tokens or NFTs and other speculative investments attracted people in droves. The increased interest from retail traders played a pivotal role in driving the market’s growth during this period.
Later in the same year, the cryptocurrency market witnessed a significant and rapid surge, characterized by Bitcoin reaching unprecedented price levels.
The rally coincided with a substantial increase in trading volume, which escalated from $21.2 billion at the beginning of 2020 to $105.4 billion on November 9, 2021, when Bitcoin reached its highest price ever recorded, as reported by CoinGecko.