Bitcoin-ETFs Fail to Safeguard Against CEX Liquidity Issues

Good morning Lion’s I trust you have all been safe and well it has been an interesting period within the Crypto currency market with Bitcoin taking a beating giving off vibes of market cooling. But it does come at an odd view because the Crypto inflow’s of cash have reached USD 2.9 Billion in a week.

Although these inflows now pretty much match 2021 level inflows the market seems to be taking a hit, so it shows one major disconnect between Bitcoin-ETFs and the actual market liquidity. Despite major financial firms buying up Bitcoin the additional liquidity doesn’t appear to be protecting Bitcoin from Centralized Exchange (CEX) sales.

One incident on BitMEX saw Bitcoin drop to below USD 9000 so while there is a big uptake of institutional and retail investors the trades appear to be made outside of the actual market. It will be interesting to see what future fixes the sector will come up with to address this issue. Because on paper, Bitcoin has a lot of funds in it so it shouldn’t be dipping but because these funds are separated in an attempt to protect them, it doesn’t appear to be working.

Volatility Issues Emerge

True to it’s form Crypto currency still appears to be quite the roller coaster ride and is currently experiencing one of its notorious downward spirals. In just six days, the market has lost a staggering USD 230 billion in market capitalization leaving investors bewildered and traders scrambling to understand the underlying causes because as mentioned above, it just doesn’t make sense.

Bitcoin has seen a dramatic drop of 11.65% from its recent all time high of USD 73,949, sparking concerns that the current bubble is popping but it is important to note that we are approaching the Halving danger zone

Market Speculative Assessments

The sector is suggesting several factors have contributed to the recent crypto market crash. One significant element is the sudden loss of momentum in Bitcoin's bullish rally. Despite the huge rise in price fuelled by ETF approval and increased interest in the Solana ecosystem, Bitcoin's momentum appears to be slowing down. As Bitcoin serves as a directional cue for altcoins, the waning momentum has triggered a domino effect, causing altcoins to haemorrhage value.

The recent crash has been particularly harsh on altcoins with the AI category suffering the most significant losses shedding 41% of their value in just one week. Altcoins like Worldcoin (WLD), Fetch.AI and meme coins such as dogwifhat (WIF) and Book of Memes (BOME) have witnessed substantial declines erasing gains accumulated during the bullish phase.

Another contributing factor to the market downturn is the escalating debate surrounding the speculative nature of crypto currencies. With Bitcoin's retreat from its record high and discussions about bubbles in global markets, investor sentiment has been rattled. Concerns about frothiness in the crypto space have intensified leading to increased selling pressure and profit-taking among market participants.

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BitMEX Liquidity Failures

Some of the recent pullback in the crypto market coincides with outflows from Bitcoin exchange-traded funds (ETFs). Negative flows into ETFs particularly Grayscale's GBTC, have added to the bearish sentiment. It is important to note previously this occurred where Grayscale funds shifted to Blackrock so a small decline didn’t last long.

But a major impact could be attributed to a rogue trader who managed to crash Bitcoin to a staggering USD 8,900 on the BitMEX exchange. By unloading a massive sell order of over 400 BTC the trader triggered an 87% plunge in Bitcoin's price before it corrected to its actual value. Although BitMEX clarified that the incident did not affect its derivative markets or index price, the event highlighted the susceptibility of crypto currency markets to manipulation and sudden sell-offs and the issue around liquidity. It also showcased how Bitcoin-ETFs don’t protect against centralised exchanges lack of liquidity.

Charting a path forward

As the crypto market continues to succumb to centralised exchange lack of liquidity and failures in security, investors and traders must exercise caution and diligence. Understanding the underlying factors driving market movements is important although, at current we seem to be in a space where there is no way of addressing the liquidity issues at current from smaller players. While the recent crash may be alarming, it is essential to remember that volatility is common in the crypto space and market cycles are characterized by ups and downs.

The upcoming Bitcoin halving event presents both challenges and opportunities for the market. Typically pre-halving retraces have occurred followed by periods of re-accumulation before Bitcoin embarks on a parabolic uptrend but we are in a new era due to the ETFs, which seem powerless to actually alter previous patterns and protect against Centralised Exchange Liquidity issues. But as the market braces for potential fluctuations in the lead up to the halving you should remain vigilant and adapt strategies accordingly.

The current crypto market crash provides and insight in the need for protections or change to centralised exchanges. While the road ahead may be uncertain understanding the contributing factors and staying informed can help investors weather the storm and you can do that by following my articles as we assess the markets daily right here on InLeo.

Image sources provided supplemented by Canva Pro Subscription. This is not financial advice and readers are advised to undertake their own research or seek professional financial services.

Posted Using InLeo Alpha