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Experts anticipate surge in Bitcoin price fluctuations as market conditions resemble a ‘coiled spring.’
On September 18, Bitcoin’s (BTC) spot volume reached $16 billion after the US Federal Reserve announced a 50 basis point interest rate reduction.
David Lawant, head of research at FalconX, indicated that the elevated volume combined with the liquidity conditions observed over the last six months may signal an upcoming period of heightened volatility.
‘Coiled spring’
Lawant pointed out that the current spot volume is nearly 30% above the daily average recorded in August, suggesting that liquidity is considerably more robust during recovery phases compared to downturns.
He reiterated the perspective recently expressed by Bitwise CIO Matt Hougan, stating that the liquidity dynamics within the cryptocurrency market resemble a “coiled spring.”
In a report released prior to the Fed’s announcement, Glassnode also likened BTC’s present price movements to a coiling spring.
The report explained that this coiled spring formation occurred because the price has been confined within “a well-defined range” for the past six months. Historically, only August 2023 and May 2016 experienced a 180-day price range narrower than the current one.
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It further noted that macroeconomic events, such as the Fed’s interest rate cut, tend to release the “pressure” accumulated over time, often resulting in significant market volatility.
Moreover, Ki Young Ju, CEO and founder of CryptoQuant, emphasized that institutions are not aggressively shorting Bitcoin, marking another positive shift in market conditions. He mentioned that CME futures net positions have decreased by 75% since April and are nearing levels seen in early October 2023.
Potential for a burst
Glassnode also observed that both market inflows and outflows have become subdued, indicating that Bitcoin has reached a state of “equilibrium.”
Additionally, net realized profit and loss are “largely equal,” and the total realized profit plus loss has significantly diminished since Bitcoin’s all-time high in March. These metrics imply that buy-side pressure is weak within the current price range, reflecting low demand for Bitcoin.
Glassnode further noted that the “Hot Supply” of Bitcoin, a metric indicating BTC holdings likely to be transferred, is at a notably low level. These wallets account for only 4.7% of the on-chain value, suggesting that the supply side is also limited.
The report also pointed out that the increasing stablecoin supply, currently at $160.4 billion, could alleviate this situation by injecting purchasing power into the market, potentially creating a conflict between inactivity and demand.
However, the report emphasized that this supply must circulate within the market for such an outcome to occur, triggering the coiled spring referenced by analysts.
The post Analysts predict Bitcoin volatility spike as market aligns like a ‘coiled spring’ appeared first on CryptoSlate.
