Last month, the price of Bitcoin and the larger cryptocurrency market continued to rise despite the banking crisis. In Q1 2023, the price of bitcoin increased by over 70%.
Yet, if liquidity drastically decreases in April, Bitcoin is likely to exhibit greater price volatility. Investors are likely to pay extra for trades due to slippages or because of the discrepancy between the expected price and the deal execution price, as said by blockchain analytics firm Kaiko. This trading difficulty is indicative of diminishing liquidity and the possibility of significant price movements later this month.
Without a question, Bitcoin has outperformed all other assets thus far in 2023. But, the market is still under pressure due to concerns about escalating US regulatory action and the closure of a few institutions that support cryptocurrencies.
Conor Ryder from Kaiko said:
"That speaks more to institutional reluctance to provide liquidity in the space. Several cryptocurrency businesses want to avoid becoming involved in a conflict between US regulators and exchanges."
Although the price of BTC sharply increased at the beginning of 2023, trading activity and liquidity have drastically decreased. Retail investors still feel the risk despite more market activity last year despite several scams.
Mark Connors, Head of Research at Digital Asset Management Firm 3iQ said:
"There are absolutely no tourists left. If you're in this, you need to be aware that things can change quickly; you can't predict what will happen day to day, but you can predict the trajectory, adoption, etc."
Spot Trading Volumes for Bitcoin
Let's examine Bitcoin spot trade volumes across the top two exchanges, Binance and Coinbase. By the end of March, the biggest trading platform, Binance, had monthly visits from 65 million users and spot trading volumes of over $6 billion.
Similar to this, Coinbase had monthly visitation of over 33 million and trading volumes of nearly $1.3 billion. For the past two weeks, US regulators have criticized these two exchanges.
At City Index, senior financial markets analyst Fiona Cincotta said:
"The amount of trade in bitcoin has decreased, "which unavoidably results in a more volatile market. Due to the abrupt decline in volumes, it is now simpler for huge orders to influence the Bitcoin prices. So hold on because there can be more wild swings ahead. Declining volumes indicate dwindling interest in Bitcoin at its most recent highs."
On the other side, a lot of Bitcoins have recently been going off-exchange. For the past 10 days, the exchange has seen a loss of roughly 46,000 BTC, based to on-chain statistics provider CryptoQuant.