Is Bitcoin’s Current Uptrend Sustainable?

    In this article, we summarized key data showing that the Bitcoin (BTC) price, despite its strong bounce in Q1/2023, is still very volatile.

    As reported, Bitcoin is currently holding above $28,000 as investors ease concerns about the state of the banking system.

    However, Bitcoin’s market depth data has plummeted following the crash of FTX. In Q1/2023, it decreased even more (red circle).

    Source: Kaiko

    Why does the lower the market depth, the more volatile the price is? Because investors need to buy/sell less BTC to cause the price range to change significantly. With the current plummeting market depth, it will be the basis for doubting whether the capital is really as abundant as many recent analyses. In fact, it doesn’t take too much money to push the price of BTC up like it did last year.

    In addition, the following Supply Distribution Percentage chart shows us the increase in supply percentage that individual investors have seen over the past 10 years. As can be seen, 20% of Bitcoin’s supply is being held by retail investors. In particular, this index had a significant increase in Q1/2023.

     Source: JA_Maartun

    The reason individual investors affect the price of Bitcoin in a volatile way is that, unlike funds and institutions, individual investors are often emotional investors. They easily get FOMO when the price goes up and also easily panic when it encounters FUD or the price goes down. They often lack a long-term strategy and are eager to see profits. Therefore, it is easy to create unstable sentiment for the price line.

    Liquidity is also an important factor affecting price movement. Data from Kaiko shows that the liquidity of BTC/USDT dropped by 50% in the last days of March.

    Binance remains a popular exchange with investors. BTC/USDT liquidity halved compared to early March, although prices were higher than in early March. The decrease in liquidity could make the price range larger. Especially when Binance and its CEO have just faced a lawsuit from the CFTC.

    Disclaimer: This article is for informational purposes only, not investment advice.

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