Bitcoin, the world’s largest cryptocurrency, jumped above $58,200 on Monday as the total market cap of BTC touched $1.1 trillion. Despite the recent price jump, there is one thing to worry about BTC, and that is the liquidity of Bitcoin.
According to a note by JP Morgan’s strategist Nikolaos Panigirtzoglou, the market liquidity in Bitcoin is significantly lower than S&P 500 and gold. He added that even a small change in Bitcoin flows can have a large impact on the price of BTC.
“Bitcoin has roughly tripled in the past three months but its liquidity has deteriorated. Market liquidity is currently much lower for Bitcoin than in gold or the S&P 500, which implies that even small flows can have a large price impact,” Panigirtzoglou added.
BTC started this year at a price level of $29,000, the cryptocurrency is up nearly 100% in the last 7 weeks. The price of Bitcoin received a major boost from institutional adoption. BTC’s volatility has increased significantly since the start of 2021 and an important reason behind that is its declining liquidity.
Bitcoin’s Limited Supply
The total supply of Bitcoin is capped at 21 million and large crypto whales are accumulating as much BTC as they can to create a supply shortage in the market. The BTC supply of the world’s largest crypto asset at digital exchanges reached its lowest level in more than 2 years this month. Cryptocurrency whales are moving large amounts from exchanges to cold storage or unknown wallets to create a shortage. More than $1 billion worth of Bitcoin left Coinbase in the last 24 hours.
“Bitcoin trading volumes are around $10 billion daily for the spot and futures market combined, compared with an equivalent figure of $100 billion for gold,” Panigirtzoglou mentioned in the note. BTC is currently trading near $55,000 with a market cap of $1.02 trillion.