Bitcoin has been receiving a huge amount of attention recently due to the ongoing banking crisis in the United States, caused by the COVID-19 pandemic. People are looking for alternatives to the traditional banking system, and Bitcoin appears to be an attractive alternative. However, despite the bull run that Bitcoin has enjoyed recently, there are concerns about its lack of liquidity, which could prevent it from being an effective hedge against the US dollar.
Bitcoin was created as a decentralized form of money that could not be controlled by any entity. Its decentralized nature made it an attractive alternative to traditional fiat currencies, and it has become increasingly popular over the years, with many people using it as a means of investment rather than just a currency.
The current banking crisis in the US has caused people to lose confidence in the traditional banking system, and many are looking to diversify their investments to mitigate the risks associated with the US dollar. Bitcoin has emerged as a viable alternative to the US dollar, and many investors have been buying Bitcoin in the hopes that it will help them protect their investments.
While it is true that Bitcoin has been performing well recently, there are concerns about its lack of liquidity. When liquidity is low in any financial market, volatility increases, which means that prices have less support on both the downside and the upside. In the Bitcoin market, this means that there is a risk of large price movements in either direction.
The Bitcoin market depth, which refers to the number of orders waiting to be filled on an order book, has reached 10-month lows in recent weeks. This is concerning because it means that there is less support for the price of Bitcoin, which makes it more vulnerable to large price movements.
The lack of liquidity in the Bitcoin market can be attributed to a number of factors. The reintroduction of fees on Binance’s BTC-USDT and BTC-BUSD trading pairs is one such factor. This has led to a sharp drop in liquidity on those pairs in the last few days. Another factor is the ongoing banking crisis, which has cut off market makers from crucial USD payment rails, forcing them to pull liquidity from order books until they receive some clarity.
The lack of liquidity in the Bitcoin market is a cause for concern. It means that it now takes less and less “size” to move the price of Bitcoin, potentially causing volatility as more traders are able to influence prices. The recent surge in buy pressure has helped to boost the price of Bitcoin, but the lack of support to the upside also applies to the downside, meaning that there is a real risk of an outsized move downwards in the coming weeks.
Despite these concerns, many people still see Bitcoin as an attractive hedge against the US dollar. The ongoing banking crisis has caused people to lose faith in the traditional banking system, and Bitcoin appears to be an increasingly attractive alternative. However, investors need to be aware of the risks associated with Bitcoin, particularly its lack of liquidity, and be prepared for the possibility of large price movements in either direction.
In conclusion, Bitcoin has certainly been a winner during the US banking crisis, but its lack of liquidity is a cause for concern. Investors need to be aware of the risks associated with Bitcoin and be prepared for the possibility of large price movements in either direction. Despite these risks, Bitcoin remains an attractive alternative to the US dollar for many investors, and its popularity is unlikely to wane anytime soon.