Bitcoin Bottom In? BTC Order Book Liquidity Says Yes

According to Hyblock Capital’s data, the market depth, which is the combination of buy and sell orders near and far from the current rate, significantly decreased over the weekend. This pattern is often seen at significant market shifts, implying that Bitcoin’s drop from its late-August highs around $65,000 might be coming to an end.

Market liquidity, as indicated by market depth, measures a market’s capacity to handle substantial trade orders without causing significant price fluctuations. This capacity often relies on various elements such as the time of day, ongoing market circumstances, and specific price points.

As a crypto investor, I’ve noticed that market bottoms often occur when traders find it tough to commit to any clear direction, resulting in a decrease of both buying and selling orders. This lack of activity can lead to reduced liquidity, making it more challenging to execute trades effectively.

In an interview with CoinDesk, Shubh Verma, the co-founder and CEO of Hyblock Capital, explained that when examining the collective order books at the 0% to 1% and 1% to 5% depth levels, there’s a tendency for periods of low liquidity to align with market bottoms. He added that these lower order book volumes can serve as early warnings of a price reversal, often signaling an upcoming bullish trend.

Verma stated, “This is a clue that could be useful for traders who want to anticipate major shifts in the market. Recognizing these discrepancies might assist in locating crucial shifts or transitions in the market.

The 1% market depth shows the total volume of buy and sell orders within 1% of the current mid-market price. The 5% depth represents liquidity 5% away from the current mid-price. Hyblock tracks market depth across multiple exchanges, including Binance and Coinbase.

Potential short squeeze and positive macro

At the moment, a single Bitcoin was being traded at approximately $54,800, representing a 4.3% increase from its Friday low of $52,530, as per TradingView data. However, despite this rise, the funding rates in the continuous futures market linked to Bitcoin remain negative. This suggests that traders are more inclined towards bearish bets, or short positions, as indicated by Coinglass.

If the market continues to show strength, those betting on a decline (bears) might decide to abandon their strategy, covering their short positions and thereby increasing the demand for the asset, which could lead to a rise in its price.

In simpler terms, the LondonCryptoClub newsletter stated in its latest issue that the current market position is relatively stable, but with interest rates being negative, there may be a greater potential for short-term losses rather than gains, which could be referred to as the ‘pain trade’.

Based on recent reports, there’s a noticeable progression towards favorable large-scale economic conditions for Bitcoin.

“Economies that rely heavily on debt can’t handle high interest rates for long. The opportunity for central banks to increase interest rates and reduce their holdings, which would tighten money supply, is usually small and it’s now over. For now, we advise caution as the market wants assurances from the Fed that they will continue supporting the economy. However, remember that the ‘party’ provided by easy money may soon come to an end. Bitcoin and crypto investors should be prepared for a return to normalcy in the market soon.