Bitcoin (BTC) spot volume hit $16 billion on September 18 after the U.S. Federal Reserve confirmed a 50 basis point interest rate cut.
According to David Lawant, Head of Research at FalconX, the high volume coupled with the liquidity pattern seen over the past six months could be a sign of imminent high volatility.
“Spiral spring”
Lawant noted that current spot volume is nearly 30% higher than the daily average in August, indicating that liquidity is significantly stronger during rallies versus selloffs.
He echoed the sentiment recently shared by Bitwise CIO Matt Hougan, who said that liquidity dynamics in the cryptocurrency market resemble a “coiled spring.”
Glassnode also compared BTC’s current price action to a coiled spring in a report published ahead of the Fed decision.
According to the report, the coiled spring pattern formed because price has been compressed into “a well-defined range” over the past six months. Historically, only August 2023 and May 2016 have recorded a 180-day price range that is tighter than the current one.
She adds that macroeconomic events such as the Fed’s interest rate cuts release the “pressure” built up over the period, which often leads to high market volatility.
Additionally, CryptoQuant CEO and founder Ki Young Ju noted that institutions are not aggressively shorting Bitcoin, which is another improvement in market conditions. He added that net positions on CME futures contracts have fallen 75% since April and are close to early October 2023 levels.
Explosion potential
Glassnode also noted that market entries and exits have become silent, indicating that Bitcoin has entered a state of “equilibrium.”
Additionally, realized net profits and losses are “broadly equal,” and the absolute realized profit plus loss has declined significantly since Bitcoin’s all-time high in March. Both of these indicators suggest that buyer pressure is low in the current price range, translating into weak demand for Bitcoin.
Glassnode also noted that Bitcoin’s “hot supply,” a metric used to define which BTC holdings are most likely to be transferred, is at a significantly low level. These wallets represent just 4.7% of the chain’s value, suggesting that supply is also tight.
The report also highlighted that increasing the stablecoin supply, currently at $160.4 billion, could end this predicament by adding purchasing power to the market, leading to the ultimate friction between inactivity and demand.
However, the report adds that this supply must rotate in the market for this to happen, triggering the spiral spring mentioned by analysts.
