Bitcoin’s recent rally has raised concerns about its sustainability, as highlighted by Nassim Nicholas Taleb, the acclaimed author of “The Black Swan.” Taleb pointed to a severe drop in liquidity as a potential red flag for investors, citing a Bloomberg article that reported Bitcoin’s liquidity hitting a 10-month low.
Market Watchers Wary Of Bitcoin’s Double-Digit Rally Amidst Liquidity Crisis
According to Conor Ryder at Kaiko, one measure of how easily the largest cryptocurrency can be bought or sold has fallen to 10-month lows, summing up the bids and asks within the 2% range of the price on both sides of market maker order books.
Crypto liquidity is dwindling as financial institutions, such as Silvergate Capital Corp. and Signature Bank, which had close ties with the crypto industry, have recently shut down. Despite Bitcoin’s strong performance this year, the lack of liquidity could result in less support for market downturns and upswings.
Numerous digital-asset firms and exchanges depended on these banks for real-time payments and other services. Ryder predicts that until the US government provides clarity, investors should brace for further short-term volatility until the market receives the liquidity boost it requires.
After FTX’s collapse, the trading volumes in the crypto market significantly decreased, causing concerns among investors and leading them to withdraw from the market. Although trading volumes have increased with the rise in prices this year, they still haven’t reached their previous record levels.
Moneta’s CIO, Aoifinn Devitt, suggests that the ownership of coins is concentrated among a small group of investors, which makes the market more susceptible to increased volatility.
As financial sector turmoil persists, crypto prices surge, leading some to believe that investors are turning to digital tokens for safety. However, others argue that the rally is not solely due to this factor.
According to analysts at K33, Bitcoin behaves like a high-risk asset and has outperformed Nasdaq and even other high-risk crypto assets. The market may also be more volatile due to a concentration of ownership among a small number of investors.
Despite the Bitcoin price surge, the community’s responses to Taleb’s tweet suggest that the hype around cryptocurrencies may be waning. One response pointed out that no one is talking about crypto during nights out, while another suggested that SVB talk is more interesting.
Other responses highlighted the concentration of ownership in the cryptocurrency market, which makes it prone to greater volatility.
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