• Bitcoin market liquidity is projected to remain low during the holiday season.
• Bitcoin ETF and halving sentiments are still potential triggers for impending recovery.

A recent prediction from Analyst Caroline Mauron of Orbital Markets suggests that despite the ongoing review of spot Bitcoin (BTC) Exchange-Traded Fund (ETF) applications by the US Securities and Exchange Commission (SEC), Bitcoin liquidity is expected to remain low during the holiday season.

Recent Bitcoin Liquidation

The crypto market experienced a turbulent stretch, resulting in Bitcoin trading near $42,000, marking an almost 8% decline in the largest digital asset’s value. The pullback, the worst three-day performance since mid-August, stirred predictions of increased volatility heading into the year-end. 

While some attribute the market correction to speculators adjusting positions ahead of a Federal Reserve monetary policy meeting, others see it as a natural consolidation following Bitcoin’s remarkable 152% year-to-date surge. “I don’t think this is indicative of any fundamental change. If anything, it’s a little bit of a buying opportunity from our perspective,” says Greg Moritz, co-founder at crypto hedge fund AltTab Capital.

According to Coinglass data, almost $455 million in crypto trading positions betting on rising prices were liquidated on December 11, the largest figure since at least mid-September. 

Crypto finally saw some profit-taking after a dizzying surge over the past few weeks,” said Mauron. “We expect to see further idiosyncratic volatility in the crypto asset class in the run-up to the ETF decision deadline in early January, which could be exacerbated by poor liquidity during the holiday period.

The decrease in Bitcoin’s liquidity is evident when analyzing the amount of BTC needed to move prices by 1%. In January, it required over 1,400 BTC, but by mid-November, this figure had dropped to 752 BTC. This suggests a reduction in market liquidity over the year. 

Bitcoin ETFs and Market Expectations

However, a potential approval of US spot Bitcoin ETFs is seen as a potential remedy, as it could attract new money into the industry and alleviate the liquidity challenges. The crypto industry eagerly awaits the outcome of ETF applications from major players like BlackRock Inc., with Bloomberg Intelligence anticipating SEC approval for a batch of funds by the middle of next month. 

A report by investment firm VanEck suggests that Bitcoin ETFs could attract inflows of over $40 billion in the first two years of trading. This capital injection could address the current liquidity challenges and support market stability.

Matthew Sigel, VanEck’s Head of Digital Assets Research noted;

We expect more than $2.4 billion will flow into newly approved US spot Bitcoin ETFs in Q1 2024 to keep the Bitcoin price elevated. Notwithstanding the possibility of volatility, the Bitcoin price is unlikely to fall below $30,000 in Q1 2024.

Furthermore, the Bitcoin halving scheduled for 2024 is expected to reduce the supply of tokens and act as a positive catalyst for the market.

As of the time of writing, Bitcoin is trading at $41,131, weighed down by a $1.64% decline in the last 24 hours. Market capitalization is pegged at $805.2 billion, while trading volume in the last 24 hours is pegged at $24.4 billion.