Bitcoin ( BTC ) spot volume hit $16 billion on September 18 after the U.S. Federal Reserve confirmed a 50 basis point interest rate cut.
According to FalconX head of research David Lawant , high volume coupled with liquidation over the past six months could be a sign of impending high volatility.
Potential compressive force
Lawant noted that current spot volumes are almost 30% higher than the daily Medium in August, suggesting more significant liquidation during recovery periods than during market sell-offs.
He echoed a sentiment recently Chia by Bitwise Chief Investment Officer Matt Hougan , who suggested that liquidation dynamics in the crypto market resemble a “hidden compression force.”
Glassnode also compared BTC ’s current price action to a potential compression in a report published ahead of the Fed’s decision.
This compression arrangement has formed because prices have been compressed into a “well-defined range” over the past six months, the report said, with history showing that only August 2023 and May 2016 have seen a tighter 180-day price range than the current one.
The report also noted that macroeconomic events such as Fed rate cuts often release “pressures” that build up during this time, leading to sharp market volatility.
Additionally, CryptoQuant CEO and founder Ki Young Ju emphasized that institutions are not stepping up their shorting of Bitcoin, which means improving market conditions. He added that CME Futures Contract net positions have dropped 75% since April and are close to early October 2023 levels.
Explosive potential
Glassnode also noted that both inflows and outflows from the market have become quiet, suggesting that Bitcoin has entered a state of “balance.
Additionally, realized net profits and losses are “pretty much equal,” and the total realized profits and losses have actually decreased significantly since Bitcoin’s peak in March. Both of these metrics suggest that buying pressure is low in the current price range, leading to low demand for Bitcoin.
Glassnode also noted that Bitcoin’s “Hot Supply,” a measure of BTC holdings that are highly likely to be transferred, is at a very low level. These wallets account for just 4.7% of on-chain value, suggesting that the supply side is also tightening.
The report also highlights that the increased supply of stablecoins , currently at $160.4 billion, could disrupt this situation by increasing buying power in the market, which would lead to an eventual clash between idleness and demand.
However, the report added that this supply needs to circulate in the market for that to happen, triggering the potential compression that analysts have been referring to.
