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Bitcoin's Recent Rally: The Reasons Behind It
Market Depth and Liquidity Issues
Bitcoin has risen more than 12% since the beginning of June, with its price topping $30,000 on Wednesday, its highest level since April 14. The recent surge in value has been linked to large trades within a less liquid market. Bitcoin's market depth has fallen 20% since the start of this year, which is a measure of liquidity in a market. When market depth is low and big players put in orders to buy or sell digital coins, prices can move in a big way up or down.
Low Volume on Exchanges
Another notable feature of the current crypto market is the low volumes being traded on exchanges. Daily trading volume currently sits around $24 billion, down from the more than $100 billion of overall trading volume seen during the peak of the 2021 crypto rally. Large crypto investors hope that an early surge in prices will be enough to tempt retail investors back into participating in the rally, which ultimately boosts prices for bitcoin and other digital coins.
Predictions for Bitcoin
Bitcoin is likely to trade within a range of between $25,000 and $30,000 for the remainder of the summer. It is not a market for ordinary clients and is expected to be driven more by long-term institutional buyers rather than retail investors. There is hope that the market is nearing a "bottoming" period where it can start to rise again, echoing activity seen in 2018 when both bitcoin's price and volumes were subdued for several months before beginning to rise again the following year.
Optimism in the Market
There has been a recent wave of interest from traditional financial institutions like Blackrock and Citadel, which instills renewed optimism in the market. Provided the wider macro environment and equity markets continue to be favorable, it is possible that bitcoin could maintain its current positive price trajectory.
In conclusion, the recent rally of Bitcoin is a clear reflection of the market's depth and liquidity issues. Bitcoin's price surge was triggered by large trades that transpired in a less liquid market. The low volume being traded on crypto exchanges could adversely affect retail investors but could eventually stimulate real institutional buyers in the long run. The current market for Bitcoin is not for ordinary clients, and there is a likelihood that it is being driven more by institutional buyers than small-time investors. This puts new businesses in a difficult spot, as they would have to rely on long-term institutional investors for growth in this market.
It is, however, essential to note that traditional financial institutions like Blackrock and Citadel have shown interest in the crypto market. This renewed optimism could have a positive impact on Bitcoin's price trajectory, as long as the wider macro environment and equity markets continue to remain favorable. While the market may be nearing a "bottoming" period before rising again, new businesses should approach Bitcoin investments with caution and carefully study market trends to make informed decisions. The key takeaway for new businesses is to understand that while Bitcoin may be a viable investment venture, it is a highly volatile market and requires expertise and proper analysis to stay profitable in the long run.