The banking crisis and the price of Bitcoin: BTC's liquidity decline will boost price volatility
Will the lack of liquidity in the cryptocurrency market be the reason for the increase in BTC?
Recently, there has been a noticeable decrease in Bitcoin (BTC) liquidity, which has reached its lowest level in 10 months. Although the price of BTC has already increased by over 70% since the beginning of the year, less liquidity means a greater chance of considerable price volatility of the oldest cryptocurrency. According to experts, the decrease in BTC liquidity may be due to banking restrictions that cryptocurrency platforms face in the US. The recent bankruptcies of cryptocurrency-friendly banks such as Signature and Silvergate are another sign that liquidity has been lacking in the virtual currency market recently.
The decrease in Bitcoin's liquidity will start to increase the risk of price volatility
Conor Ryder noted that there is a decrease in liquidity in the digital currency market, as exchanges that buy and sell virtual currencies have lost access to banking systems and payments in USD.
– Liquidity on cryptocurrency exchanges in the US has suffered the most due to concerns around banks. It seems that the main reason for the recent BTC price increase was the lack of liquidity in the oldest cryptocurrency market, Ryder said.
However, some analysts are skeptical as to whether the current banking crisis is the real reason for Bitcoin's price increase. This can only be the speculation of investors who are currently waiting for potentially lower interest rates. Moreover, Aoifinn Devitt, CIO at Moneta, believes that the digital currency market may be prone to greater volatility as most cryptocurrencies are largely centered around a small number of investors.
“Exactly the same can happen with stocks. Some of the big hedge funds can create much more volatility, Devitt stressed.
Bitcoin oscillates around USD 28,000
In the world of cryptocurrencies, there is a strong narrative recently that the increase in the price of Bitcoin appeared due to the current banking crisis. However, not all analysts are convinced of this. Some of them argue that Bitcoin investors are starting to hope for potentially lower interest rates in the US, as well as in other countries.
Currently, Bitcoin is in a strong consolidation zone between $27,180 and $27,950 with 1.45 million addresses buying over 700,000 BTC. It follows that the price of Bitcoin may stay at this level for a long time in the near future.
Despite the facts of the digital currency market presented above, popular investor Balaji Srinivasan predicts that the price of BTC will reach $1 million as the US faces hyperinflation. The bet is in response to a statement by financial expert James Medlock, who offered a $1 million bet that the US will not go into hyperinflation despite the recent collapse of the country's banking sector.