Crypto Global Bid and Ask Metric Plunges 20% Over Weekend, Indicating Extremely Low Liquidity Levels
Robinhood's Crypto Trading Volume Plummets by 68% in May, Reaching $2.1 Billion
Robinhood Ceases Trading Support for All Tokens Listed in SEC Lawsuit as Securities
Bitcoin (BTC) has shown signs of recovery since last Thursday, but the cryptocurrency is still heading towards its first monthly decline since December.
At the time of writing, the primary cryptocurrency by market value was hovering around $27,800, representing a 7.5% increase from the previous week's low of under $25,900. Nonetheless, it remained down approximately 5% for the month, marking the first monthly decline of the year (assuming this loss persists until Wednesday's UTC close). Bitcoin exhibited positive performance in January, March, and April, while February ended with no significant change in price.
According to CoinCryptoUs data, Bitcoin appeared poised for a monthly decrease of approximately 7% in comparison to ether (ETH).
Bitcoin's dismal performance in the past month coincides with bond traders' renewed speculation that the Federal Reserve (Fed) will maintain higher interest rates due to persistent inflation and a robust labor market. Initially, traders anticipated a decline in the benchmark borrowing cost, the Fed funds rate, to 4.5% or even lower by the end of 2023, from its current rate of 5%. However, the market no longer predicts any rate cuts from the Fed to occur this year.
The U.S. dollar has experienced a significant surge this month, thanks to the renewed hawkish sentiment of the Federal Reserve. This bullish outlook has propelled the greenback by 2.7% against various fiat currencies, including the euro. It's worth noting that Bitcoin often exhibits an inverse relationship with the dollar, meaning that when the dollar strengthens, Bitcoin's value tends to move in the opposite direction.
Capital has been steadily exiting the cryptocurrency market since the beginning of last year. This pattern has persisted throughout the current month, resulting in a decline in the market capitalization of stablecoins to its lowest point in 20 months, reaching only $130 billion. Stablecoins, which are digital assets with values tied to external references such as the U.S. dollar, have been extensively utilized to finance the acquisition of other cryptocurrencies over the past three years.
"We can assume that the liquidity wave of lower inflation has now run its course and the market needs a new driver and theme to lift prices higher," Markus Thielen, head of research and strategy at crypto services provider Matrixport, said. "The tech sector tends to be correlated with BTC, but the former has found new life with the AI and Chat GPT revolution, which is not benefiting BTC yet."
Bitcoin has detached itself from Nasdaq, the technology-heavy index of Wall Street, exhibiting an impressive surge of almost 8% this month.
Griffin Ardern, a volatility trader at crypto asset management firm Blofin, expressed his belief that the ongoing high-interest rate environment would continue to work against Bitcoin bulls.
"In a high-interest rate environment, high risk-free returns such as money market funds are more attractive to investors, which means the lack of liquidity in the crypto market continues," Ardern said.
Dick Lo, the visionary behind TDX, a quant-driven cryptocurrency trading company, expressed that the 4% surge in Bitcoin on Sunday was a welcome relief rally in response to the announcement made by U.S. leaders regarding a provision deal to raise the previously reached $31.4 trillion debt limit in January. However, Lo believes that achieving additional gains in the near future could prove to be challenging.
"The rebound we saw on Sunday night / Monday morning was very much a relief rally on the back of the U.S. debt ceiling package. The market will likely return its focus to the possibility of another 25 basis points interest rate hike at the June FOMC meeting and the potential liquidity drain as the Treasury needs to sell at least $500 billion in bills in the short-term to refill its cash position, which will weigh on risk assets," Lo said.
We see strong resistance on BTC at $28,500 with initial support seen at $27,350, followed by a potential retest of $26,200," Lo added.
