Bitcoin price falls below $29K, no surprise given volatility and liquidity metrics

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key takeaways

  • Bitcoin has dropped from $30,000 to close to $28,000
  • Our research looks at key data, arguing this move should come as no surprise
  • Bitcoin’s fixed supply and lack of dividends or earnings means the price is based entirely on demand.
  • Thin Liquidity in Bitcoin Market Exaggerates Every Move, 45% of Stablecoins Leaving Exchanges in Last 4 Months
  • Correlation with stocks remains high with high UK inflation giving pause for thought
  • The market has also pulled back a bit on the forecast of an interest rate cut, and bitcoin has followed suit.

How many times have I been asked “Why?” Bitcoin Rising?”, or “What is this bitcoin selloff?”.

For many assets, it is clear as day what price action is going to take in any given trading period. Earnings Estimates Missed by 10%? Hello, Red Candle. Warren Buffett announced a massive buyout of your stock? Buckle In; We’re going north.

For bitcoin, it’s a bit tougher. There are no dividends or dividend forecasts; Bitcoin does not provide any yield. There is no income either. Additionally, the supply does not oscillate, rather it follows a pre-determined schedule set by Satoshi Nakamoto in October 2008, controlled by blocks in ten-minute intervals.

With supply in stone and out of the picture, and the absence of any periodic yield/forecast derived from dividends or income, means that the price of bitcoin is all about demand. And it is very difficult to guess. bitcoin wala bitcoin, is often about the best argument that can be given.

But there are factors that we can assess. There is a fluidity, which I recently touched Detailed analysis Because bitcoin rose above $30,000 for the first time in ten months. Order book liquidity is as thin as it was in over a year, while total capital has largely flown out of the crypto space. Take a look at the balance of stable coins on the exchanges:

This accounts for 45% of stablecoin balances over the past four months, with balances due less than in October 2021.

With bitcoin already uber-volatile (the VIX metric blows any “normal” asset out of the water), this exacerbates its propensity for violent moves even further. In simple terms, thin liquidity means that less action is taken to move the price.

Why is the price of bitcoin currently falling?

Therefore, it’s often difficult to pinpoint why bitcoin is moving, as it’s thin liquidity and uncontrolled demand combine to make it very vulnerable.

But sometimes, we can make educated guesses as to what bitcoin will move on any given day. This is one of those moments.

Macro conditions have been the key for bitcoin for a long time. Again, a little chart to show it:

Despite some tentative optimism that bitcoin was disintegrating as investors fled a collapsing (fiat) baking system for the safe haven that is bitcoin, the orange coin has been moving heavily alongside higher-risk assets, such as That tech stock listed on the Nasdaq.

i wrote a Detailed analysis Bitcoin’s decline in correlation with stocks was just a temporary blip during the banking crisis. looking at the data it seems come back up,

And looking at the broader financial markets over the past few days, optimism on the economic climate has taken a backseat. UK inflation released yesterday held firmly in double digits, boosting expectations that the Bank of England will hike further.

In the US, the Atlanta Federal Reserve chairman said he expected another 25 bps hike, creating another doubt for the market that a hike may not be done yet.

Not to mention a rally can’t go on forever. Bitcoin has declined this year, up 74% year-to-date. It’s an asset that’s always on the move, so it’s no surprise that it’s finally showing some weakness. And the drop from $30,000 to $28,000 is just a drop in the ocean compared to its potential.

Given the volatility and thin liquidity, a real bitcoin red candle cannot be ruled out, just as it could suddenly move north. As financial markets adjust to new data all the time, such as the all-important inflation reading and FOMC minutes, bitcoin will continue to move like a lever on tech stocks.

Everyone has an idea of ​​the direction in which it will move. I don’t have a crystal ball, and I won’t make any predictions just for the sake of it, because I simply don’t know. With the world in an economically uncertain state right now not many people do this. Inflation is still high, yet interest rates are clearly approaching the end of a tightening cycle.

Soft landing, hard landing, something in between? The future will tell. But whatever happens, the volatility of the world’s largest cryptocurrency is very real, and sudden changes and big swings in price won’t stop anytime soon. Bitcoin bitcoin wala.

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