Liquidity in the cryptocurrency market should recover rapidly after the recent price fall of Bitcoin, say analysts at JPMorgan. The flagship cryptocurrency’s recent price crash was worsened by the liquidation of futures contracts.
JPMorgan Predicts Bitcoin Liquidity to Recover
Liquidity in the Bitcoin market should recovery following the leading cryptocurrency’s recent price crash, JPMorgan said. Analysts at the global investment bank said that the activity in the spot and futures markets is in fact growing more resilient.
Earlier this week, Bitcoin had a 15% selloff as leveraged long positions were quickly liquidated.
The leading investment bank pointed out that the sell-off was “likely exacerbated by the prevalence of high-frequency market-making, which we estimate makes up ~80% of on-screen liquidity on major cryptocurrency exchanges and is prone to runs when threatened by a spike in volatility.”
Since then the Bitcoin market appears to have stabilized, adding “the worst of liquidations are behind us.”
“Going forward, bitcoin liquidity should remain robust and resilient; depth on major exchanges has continued to drop less and recover faster than other asset classes. Though it will take a few days to play out, history suggests liquidity should recover quickly,” says JPMorgan.
Analyst at the bank added that Bitcoin mining rates had also recovered after the recent drop.
“A recovery in the hashrate and signs of more efficient arbitrage trading suggests liquidity should continue to improve from here.”
Bitcoin Recovering from Its Recent Price Crash
Bitcoin started to fall dramatically on April 16 and continued falling across the week to below $50,000 from its recent all-time high of more than $64,000 from a week earlier. Since then the flagship cryptocurrency has picked up from the start of the week to roughly trading at $53,745 at the current time.
JPMorgan further added that Bitcoin mining around the world appeared to have recovered and that could suggest:
“A recovery in mining and signs of more efficient arbitrage trading suggests liquidity should continue to improve from here.”
The report also pointed out the 24/7 access to the cryptocurrency markets, a rarity in traditional markets could further encourage overall stability.
“A well-developed norm of access to 24/7 stable liquidity pools should benefit cryptocurrencies over time, as the market continues to deepen and mature.”