Traders fret over falling Bitcoin volumes

MarketsWeek is a weekly column analyzing price movements in the global digital currency markets and the use of the technology as an asset class.

Bitcoin prices have spent the week – until April 8 – trading between $415 and $425 on moderate volumes.

This state of affairs largely reflects the decline in Bitcoin’s trading volume during the previous week compared to the past few weeks.

Some market experts have tried to explain bitcoin’s relative price stability by stating that low volatility could undermine the interests of many traders. George Samman, a blockchain consultant and advisor, told CoinDesk that bitcoin’s volatility has been minimal since 2012, so “volume has dried up” and is well below its 52-day and 52-week moving averages.

He said “I still think this is the calm before the storm,” adding that it’s “almost no trading area.”

“A lot of people are still watching and waiting,” so “it’s pretty quiet right now,” Zane Tackett, director of community and product development at Bitfinex, told CoinDesk.

When discussing the main challenges facing Bitcoin, he said that most people "don't know how to scale" and whether "the SegWit soft fork can be implemented smoothly and in a timely manner."

Others have also pointed out that this is also influenced by seasonal factors. For example, many traders have been on vacation because of Easter in the West and Qingming Festival in China, BitMEX co-founder and CEO Arthur Hayes told CoinDesk.

Price Trends

According to data from the CoinDesk Bitcoin Price Index (BPI), during these seven days, the price of Bitcoin climbed from $415.42 to $421.07 at 12:00 UTC on April 8.

This represents a modest price increase of 1.4%. The digital currency did experience some significant volatility during the week, with prices surging from $415.73 to $420.25 between 21:00 UTC on April 1 and 01:00 UTC on April 8.

But as of 02:00 UTC on April 5, the price of Bitcoin was still fluctuating mainly between $417.50 and $420, and the rest of the week it was fluctuating between $420 and $422.50.

Data from 17:00 UTC on April 8 showed that the price of digital currencies has been fluctuating in this narrow range during the week, and market participants traded more than 8 million bitcoins. This figure is far from the previous week's record of 32 million bitcoins.

Ethereum is still unstable

While Bitcoin’s price action and volume were stable this week, the native cryptocurrency Ether – known to the public as the Ethereum blockchain – experienced significant volatility, with its price dropping 14.3% from 0.028 BTC to 0.024 BTC as of 12:00 UTC on April 8.

Hayes said this sharp price drop occurred when many people traded in Bitcoin instead of Ethereum due to its volatility. But interest has been rekindled, with Ethereum generating a total 24-hour trading volume of 19,898 BTC at the start of the week and 19,856 BTC at the end of the week.

Christopher Burniske, analyst and head of blockchain products at investment management firm ARK Invest, examined technology to learn more about the future price action of Ethereum.

“Ether has broken the triple bottom support it had been developing since March 20, around 0.0235 BTC/ETH,” according to Poloniex data. “If the downward trend is not reversed, it could retreat back to 0.020 – the strong price rebound that occurred after the high trading volume on March 18.”

The Legitimacy of Bitcoin’s Rise

While Bitcoin’s relative price stability has also been helping Ethereum gain popularity, some market experts assert that the absence of volatility may help Bitcoin gain greater legitimacy.

“A year ago, bitcoin’s volatility was a hot topic,” Tim Enneking, chairman of Crypto Currency Fund, a digital currency-focused hedge fund, told CoinDesk. “If you step back and look at bitcoin from a usage cycle perspective, the stability of the currency is unprecedented.”

Enneking said:

“If you look back at the criticisms against Bitcoin as a currency, one of the criticisms is that it’s not stable enough.”

He also said that if such claims are invalidated, "Bitcoin will get closer and closer to legal currency."

While Enneking was discussing how Bitcoin’s high stability makes it a legitimate currency, another expert also said that the lack of volatility would help showcase the digital currency’s fair price.

Joe Lee, founder of bitcoin derivatives trading platform Magnr, told CoinDesk that “continued price stability suggests bitcoin is fairly priced despite low-level speculative trading,” adding:

“Reducing price volatility will allow Bitcoin’s utility to grow dramatically.