Analysts suggest that Bitcoin’s recent surge could be driven by an ongoing liquidity shortage and declining stablecoin market cap. 

The ongoing liquidity shortage in the cryptocurrency market has been significantly impacting Bitcoin’s price, which has experienced dramatic fluctuations of over 10 percent in recent weeks.

According to research from FalconX, the average volume of Bitcoin trades within a 1 percent price range from its current value has been at its lowest for the year. This comes despite a renewed surge in trading activities, partially ignited by market speculation surrounding the potential approval of a Bitcoin ETF (Exchange-Traded Fund).

Bitcoin’s declining exchange reserve

How Does Low Liquidity Affect Bitcoin’s Price?

In financial markets, low liquidity means fewer buyers and sellers, making it more challenging to enter or exit positions without affecting the market. When liquidity is low, even a small number of trades can have a significant impact on the price. This is because there are fewer buyers and sellers, so it takes less volume to move the market, thus low liquidity environments are easier to manipulate.

A trader with a large enough position can artificially move the price up or down to their advantage. In a low liquidity environment, traders may attempt to capitalize on these price swings, thereby adding to the volatility.

The “Alameda Gap” and Its i
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Author: Mohammad Shahidullah

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