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Low BTC liquidity may increase volatility in the last week of March

The recent macro developments coupled with the resumption of Bitcoin’s store of value narrative are creating an environment in which Bitcoin may outperform the remainder of risk assets, although liquidity could be an issue.

March 27, 2023 - Bitcoin prices were around US$28k last week, which is the same level it reached in the weekend before, when central banks around the world, led by the Fed, provided a relevant amount of liquidity to the international banking system; trying to avoid the worsening of the current banking crisis. On top of that UBS Group acquired the troubled Credit Suisse with the blessing of the Swiss central bank, and the Fed announced that it would ensure a steady flow of the US dollars using swap lines. In parallel, there was a “flight to quality” to Bitcoin from altcoins, as the largest cryptocurrency’s dominance over the remainder of cryptoassets reached a 9-month high, at ~45%. Besides the banking concerns, the Fed raised the interest rate by 25bps, as expected, but it indicated that the additional rate hikes are not a certainty.

These macro elements coupled with the resumption of Bitcoin’s store of value narrative are creating an environment in which Bitcoin, and other criptoassets, may outperform the remainder of risk assets. However, the recent measures from US regulators against the crypto industry have been preventing some market participants from moving funds from the traditional financial market to Bitcoin, which has been seen by many as a potential safe haven against a distrusted banking system. Indeed, Bitcoin liquidity has dropped below that level it reached when FTX/Alameda collapsed last year, which was called at the time as the “Alameda Gap” due to its relevance as a market maker. Therefore, Bitcoin prices may experience increased volatility in the next few weeks due to low liquidity, in our view.

In the meantime, companies from the traditional financial market are slowly, but surely increasing their exposure to the crypto industry. Nasdaq just announced its plans to launch a crypto custody service by the end of 2Q23. The company is among other big names as Fidelity Investments, BNY Mellon and BlackRock, which have been developing products related to the crypto industry lately. It is worth to highlight that Digitra.com was the first business worldwide to use NASDAQ’s technology to offer cryptocurrencies trading.

For this week, we believe that investors will pay attention to the development of Deutsche Bank’s situation, after its credit default swap soared on Friday. Some analyst were quick to differentiate Deutsche Bank’s situation from that of Credit Suisse, which may be a positive signal. Moreover, the market may look at Feb PCE core release on Friday, seeking for some inflationary trends, although the next Fed’s decision rate will take place only on May 3rd.

About digitra.com

We are a global cryptoassets exchange. We became the first business worldwide to use NASDAQ’s technology to offer cryptocurrencies trading. We are also the first exchange not charging trading fees, keeping our clients assets with Fireblocks, the main institutional cryptoassets storage company in the world, and also having insurance for those assets.
Therefore, we built a governance level in the crypto market only compared with that of traditional financial institutions.