Bitcoin’s recent price spike, after the court decision in favour of Grayscale, has been driven by futures markets, not spot exchanges. As per CryptoQuant data, this sudden market change has sparked worries about Bitcoin liquidity and price swings, even with low trading volumes. Recently, Bitcoin market liquidity has decreased, increasing the risk of large price swings with few deals. Contrary to predictions, derivatives exchanges drove Bitcoin’s recent price increase.
Crypto Market Volatility Persists Despite Modest Trade Volumes
The “Funding Rate,” a standard statistic, indicates market sentiment. Although it did not reach severe levels, it was not expected to affect prices. The “Trading Volume Ratio (Spot VS. Derivative),” which showed a fall rather than a gain, suggests that the spot market did not boost Bitcoin’s recent price spike.
Compared to bounces in January, March, and June of this year, “Trading Volume (Spot VS. Derivative)” data showed a constant fall. Trading volume dropped on the day of the price increase. It increased fears about the cryptocurrency market’s liquidity issue.
On the day of the spike, spot exchanges traded 74,699, while derivatives exchanges traded 1,416,108. This striking difference highlights spot trading’s waning interest, raising liquidity worries. The cryptocurrency market is subject to price volatility even with modest trade volumes due to decreased liquidity. Many have seen the current surge and felt “Fear of Missing Out” (FOMO), however, care is advised for investors.
Volatility Risks Loom as Bitcoin’s Market Enthusiasm Grows
FOMO-driven actions can lead to costly mistakes and unanticipated accumulations for investors and traders. Instead, during joyous periods, market research must be reasonable and data-driven.
Contrary to forecasts, derivatives exchanges drove Bitcoin’s price rise, indicating a drop in spot market activity and cryptocurrency market liquidity. As market enthusiasm grows, investors must be cautious and strategic to shrink volatility risks. The Bitcoin landscape is full of uncertainties, therefore careful research is essential to success.
Source: https://blockchainreporter.net/bitcoins-recent-surge-driven-by-futures-raises-liquidity-concerns/