Bitcoin and other cryptocurrencies gained on Friday after a volatile but buoyant week. However, Saturday and Sunday pose a challenge for crypto traders as a lack of liquidity in the markets is likely to exacerbate price volatility.
Bitcoin’s price is up 1.5% in the last 24 hours to $28,100, putting it back in the zone near $28,500, marking both the most recent high for the largest crypto and the highest since last June, when the bear market that defined 2022 accelerated. Bitcoin is up 70% so far this year, spurring calls for a new bull market. Analysts have viewed the $30,000 level – where prices were before the June sell-off – as crucial.
“Bitcoin still has a good chance to test the $30,000 level,” said Alex Kuptsikevich, an analyst at broker FxPro, but added that a mid-term correction to $25,000 is still a risk if prices fail to hold gains.
After weeks of outperformance, digital assets have largely slipped back into their correlation with the stock market this week, swinging around with the Dow Jones Industrial Average and the S&P 500 and serving as a barometer of risk appetite.
But the weekend could prove challenging for digital asset traders and either way could be the pivotal step in Bitcoin’s next move.
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Crypto markets have suffered from a lack of liquidity — essentially the crowd of buyers and sellers — since the FTX collapse in November. The situation has been exacerbated by the recent collapse of two crypto-focused banks. In particular, Bitcoin’s weekend trading volume has plummeted: According to data provider Kaiko, trading volume on weekends is now on average a third lower than on weekdays.
“Crypto markets are most volatile when liquidity is low. Prices have less support both on the downside and on the upside, which could explain Bitcoin’s rapid 17% surge since the beginning of the month,” said Kaiko analyst Conor Ryder. “The liquidity situation in crypto is at stake.”
Digital assets are likely to move immediately with stocks in response to economic news. The vast backdrop of high inflation and rising interest rates played a key role in linking moves between cryptos and stocks over the past year. Higher interest rates – part of the Federal Reserve’s effort to tighten financing conditions to curb inflation – reduce demand for both asset classes.
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Shifting interest rate expectations caused by strains in the banking sector as a result of tighter financial conditions have given Bitcoin a boost of late. Investors are now expecting the Fed to reverse monetary tightening. As the central bank delivered another quarter-point rate hike this week, markets have kept pace. Traders are bullish as the Fed has also indicated that the end of rate hikes is near.
“While a pause in interest rates could have sparked a broad risk rally that could have supported Bitcoin and Ethereum, the market now seems to view the Fed’s moderate hike and steady language as consistent rather than radical,” said Siad Alex Thorn, head of research at crypto financial services group Galaxy Digital.
For its part, the stock market was set for losses by the end of the week as concerns over the health of banks — which haven’t impacted crypto as much as interest rate expectations — continue to weigh on investor sentiment. In addition to comments from St. Louis Fed President James Bullard, investors will be watching March manufacturing and services PMIs and February durable goods orders.
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All of this could move markets in the absence of any significant banking news.
“Markets want to see signs of slowing growth, but not a collapse, in the data and a less aggressive tone from Bullard,” said Tom Essaye, founder of Sevens Report Research.
Alongside bitcoin, ether — the second largest cryptocurrency — rose 2.5% to $1,800. Smaller cryptos or altcoins were more mixed, with Cardano down 3% and Polygon above flat. Memecoins were also slightly weaker, with both Dogecoin and Shiba Inu down less than 1%.
Write to Jack Denton at [email protected]