Bitcoin is currently in a long-term consolidation zone that makes many investors wonder what happened with the cryptocurrency’s volatility?
Once one of the most volatile markets, it now predominantly trades between $7,700 – $10,400, making it difficult to speculate on its price changes.
For almost two months now, the price of Bitcoin has been unable to break and hold above the magical $10,500 level. In the meantime, another halving took place, attracting a large number of buyers from the retail community.
Possible Explanations for Bitcoin’s Consolidation
Before starting, it is worth mentioning that the crypto-market is the place for both short-term speculators (i.e., scalpers) and medium to long-term investors. However the medium investors (i.e., swing traders) are likely to be less active on the crypto-market as most retail traders are holders (i.e., buy Bitcoin or other crypto assets and hold them indefinitely).
Therefore, the market is driven mainly by short-term speculators and holders. As institutional investors still hesitate to come in large sizes, the price action is driven by the short-term traders. Usually, retail traders’ volume is exceptionally light, thus unable to move prices significantly.
Another explanation comes from the recent surge in retail trading accounts on the Robinhood platform. The Robinhood phenomenon is non-neglectable, as it offers retail investors the possibility to invest in fractional shares (i.e., buying just a portion of a company’s share for as little as $1). In other words, the retail trader decides how much to invest in a company’s share and the broker converts the amount into fractional shares.
This way, a huge number of new investors discovered the stock market, leaving Bitcoin and other cryptocurrencies with drying liquidity.
Since early May’s halving, Bitcoin’s price did not go anywhere. It simply consolidates on a straight line, and on bigger timeframes keeps forming lower highs since the 13,000 value on the most recent spike higher.
One can also argue that Bitcoin and the US equity markets had a direct correlation since the pandemic outbreak. Therefore, instead of having a diversification effect in relation to a stock market’s portfolio, Bitcoin increased the risk exposure.
It is important to remember that the crypto market is unregulated. Thus, price manipulation should not be discounted. – so far, the market did not signal that.
Moving forward, the more the pandemic affects the world’s economies, the more stringent the need for liquidities will be, and holders will have a hard time finding a logical excuse not to sell their Bitcoins.