Bitcoin volatility drops amid decline in liquidity, but a possible catalyst is approaching

Market Analysis

Bitcoin (BTC) price has consolidated within a tight range as hodlers remain hardened and new liquidity is not arriving. 

While Bitcoin is typically a highly volatile asset, weekly consolidation around a slight 3.4% price range has many analysts feeling that BTC price is stuck. Others are anticipating an uptick in volatility. While the lack of Bitcoin price action is partially due to long-term hodlers’ conviction and the trickle of new liquidity entering the market, BTC has still outperformed many assets in 2023.

According to a new Glassnode report, on-chain data provides key indicators on Bitcoin’s price.

Unrealized profits up, volume down

Bitcoin price liquidity remains cyclically low in realized terms. This may be because many investors are breaking even near the current Bitcoin price.

Bitcoin’s price is mirroring historically oversold levels with 9% of unrealized profit remaining in the market.

Bitcoin unrealized profit ratio. Source: Glassnode

Despite the rise in transactions due to text-based ordinals, Bitcoin volume remains muted. The lack of liquidity magnifies Bitcoin investors’ accumulation strategy even with unrealized profits, showing a solidification of sentiment among long investors. Bitcoin on-chain transfer volumes remain below $4 billion, much lower than the all-time high of over $13 billion.

Bitcoin transfer volume. Source: Glassnode

As a result of the minimal unrealized profits and low liquidity, there is minimal incentive for hodlers to sell.

Related: Ordinals turned Bitcoin into a worse version of Ethereum: Can we fix it?

Seasoned Bitcoin hodlers increase their wealth

The May 2021 Bitcoin drop that saw prices fall from $56,000 to $29,000 led to many traders accumulating BTC. With these buyers currently underwater from a profit-perspective, their wealth continues to expand compared to other groups.

The May 2021 accumulation group’s wealth is up 25% compared to other groups. When looking at Bitcoin hodlers from six months to two years, both are currently at a loss.

Bitcoin hodler cohorts. Source: Glassnode

Hodlers from the 2021 cycle have been through pain and multiple Bitcoin cycles at this point. The conviction is allowing them to increase their wealth ratio with weaker hands exiting.

Bitcoin is up, banks are down

Analysts continue to fret about the impact of a U.S. debt default and the impact this would have on BTC price.

While Bitcoin price typically mirrors the macro markets, BTC has performed better than equities since the U.S. regional bank run.

Bitcoin performance against equities. Source: Delphi Digital

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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