On September 18, Bitcoin’s (BTC) spot trading volume soared to $16 billion, coinciding with the US Federal Reserve’s announcement of a 50 basis point interest rate cut.
Indicators of Increased Volatility
David Lawant, the head of research at FalconX, pointed out that this surge in volume—about 30% higher than the daily average seen in August—may indicate heightened liquidity during recovery phases compared to downturns. He shared insights similar to those by Bitwise CIO Matt Hougan, describing the current crypto liquidity scenario as akin to a “coiled spring.”
Understanding the ‘Coiled Spring’ Effect
A recent report from Glassnode likened Bitcoin’s price movement to a tightly coiled spring right before an impactful release of energy. The analysis suggests that the price has been maintained within a compressed range for the past six months, with only two other recent periods (August 2023 and May 2016) showcasing tighter 180-day price ranges.
Macroeconomic Influences
According to the report, significant macroeconomic events, such as interest rate cuts by the Fed, often relieve the built-up “pressure,” leading to increased market volatility.
Institutional Insights
Ki Young Ju, the CEO of CryptoQuant, provided additional context, noting a significant decrease in aggressive Bitcoin shorting by institutions. In fact, CME futures net positions have dropped by 75% since April, approaching levels not seen since early October 2023.
Market Equilibrium and its Implications
Glassnode further observed that Bitcoin’s market inflows and outflows have stabilized, indicating a state of “equilibrium.” This balance is also reflected in the near parity of realized profits and losses, with both metrics showing a decline since Bitcoin’s all-time high in March. Such trends imply a reduced demand for Bitcoin in the current price range.
Supply Dynamics
The report highlighted that Bitcoin’s “Hot Supply”—a measure of BTC that is more likely to change hands—has reached a notably low level, with these wallets now constituting only 4.7% of the total on-chain value. This signals a constricted supply side in the market.
Potential Market Awakening
Interestingly, the current stablecoin supply is at $160.4 billion, presenting a potential catalyst for market activity. This influx could inject much-needed purchasing power, intensifying the friction between market inactivity and demand.
For this scenario to unfold, the stablecoins must circulate within the market, activating the previously mentioned coiled spring effect.