Bitcoin Traders Dismiss Price Highs Despite Liquidity Drop

Bitcoin reached its highest price in two weeks on January 30, although traders warned of decreasing liquidity in the order book. The price of BTC rose to $43,853 on Bitstamp, but then consolidated around $43,500 after the Wall Street open. This increase marked a change in direction since the weekend, with Bitcoin up over $5,000 compared to its previous two-month lows. The improvement coincided with reduced outflows from the Grayscale Bitcoin Trust (GBTC), one of the newly-launched spot Bitcoin exchange-traded funds (ETFs). Resistance at $43,800 posed a challenge for bulls.

Traders and analysts noted the need for buyer conviction if Bitcoin is to regain its range highs at $48,000 that were seen earlier in January. The thicker ask depth at $43,800 suggested that more supply overhead would require high volume buying for the price to test $48,000. Bids on the orderbook were thin, except for $42,000 and $40,000, with thick bid depth below $38,000. This lack of liquidity below the spot price could potentially open the path to downside movement.

Another factor contributing to potential volatility was the United States Federal Reserve’s decision on benchmark interest rate changes, which was scheduled for January 31. Material Indicators, a trading resource, speculated that the move since Friday was anticipating the Fed’s announcement and the monthly candle close for Bitcoin. Keith Alan, co-founder of Material Indicators, believed that the combination of the Fed’s commentary on the economy and the lack of liquidity could create a perfect storm for crypto volatility.

The focus was on Fed Chair Jerome Powell’s speech and press conference, as his comments could potentially cause market turbulence. Any indication that the Fed may not cut rates as soon or as deeply as expected could create opportunities for volatility in the crypto market. According to CME Group’s FedWatch Tool, the probability of rate decreases in March stood at just under 40% at the time of writing. Traders were closely monitoring these developments for potential shifts in Bitcoin’s price.