- Bitcoin diminishing spot volume intensifies market volatility.
- Recent days marked significant liquidations, especially in long positions.
- Analysts and reports suggest an exacerbated vulnerability in the current market.
An in-depth examination of Bitcoin’s declining spot volume, its implications for the market’s volatility, and the consequential risks for investors.
Bitfinex’s Report Raises Red Flags
Bitfinex Alpha’s latest insights highlight an alarming trend. The majority of liquidations over the past seven days pertained to long positions, especially evident last Monday when bitcoin futures positions worth over $44 million faced liquidation amidst a volatile trading environment. The report emphasizes that the current market, with its particularly low spot volumes, is rife for greater liquidations. It’s noteworthy that we are currently in one of Bitcoin’s lowest volatility phases.
Spot Market’s Deficiency: An Underlying Issue
Bitfinex analysts pinpointed an unsettling observation in a note to COINOTAG: “In the last week, perpetual swap markets witnessed leveraged long positions striving to elevate the price. However, their efforts were thwarted by the insufficient support from the spot market buying.” Such leveraged positions, devoid of adequate spot buying, are prone to vulnerability, often resulting in their liquidation during market fluctuations.
The Crypto Market’s Declining Risk Appetite
September was a challenging month for cryptocurrencies, plagued by a low spot volume. Ruslan Lienkha, YouHoldler Chief of Markets, attributes this trend to macroeconomic influences curbing the appetite for risk assets among investors. Instead, a shift towards fixed-income investments is evident. Without a pressing macroeconomic factor, Ruslan anticipates no immediate alteration in this scenario. He conveyed to COINOTAG, “The crypto realm is currently bleak, witnessing capital withdrawal because of escalating rates in conventional finance. A majority of financiers predict an imminent surge in bond market rates.”
Capital’s Great Exodus from Crypto
On-chain metrics presented by Ruslan echo the sentiment of an intensified capital exodus from the crypto domain. A parallel examination of Bitcoin’s price graph and the stablecoins market cap from recent months elucidates a mutual decline, a testament to the capital outflow. This trend aligns with the CCData report findings that marked the stablecoins market cap plummeting to $124 billion in September, a nadir since August 2021. Furthermore, stablecoins’ dominance dwindled by 0.2%, settling at 11.6% by mid-September.
Investors, Beware of the Impending Implications
For investors, the crypto market’s declining risk appetite and low spot volume spell potential risks. Firstly, this scenario amplifies susceptibility to volatility, necessitating cautiousness in leveraged positions and the imperative of a risk mitigation strategy. Secondly, reduced spot volume could hinder buying or selling significant bitcoin quantities at optimal prices. Thus, a patient approach with limit orders becomes paramount. Lastly, a waning risk appetite might push investors towards offloading their bitcoin assets soon, potentially suppressing prices further.
Conclusion
In this challenging phase for Bitcoin enthusiasts, it’s vital to acknowledge the cyclic nature of the cryptocurrency market. Periods of low volume and high volatility are par for the course. Embracing a long-term investment philosophy and refraining from reactive decisions based on ephemeral price shifts is the need of the hour.
