On September 18, Bitcoin’s (BTC) spot volume reached $16 billion after the US Federal Reserve confirmed a 50 basis point interest rate cut. This surge suggests a shift in market dynamics.
‘Coiled Spring’ Scenario
David Lawant, head of research at FalconX, noted that the high volume, combined with recent liquidity trends, could signal upcoming volatility. Currently, Bitcoin’s spot volume is about 30% higher than the August daily average, indicating that liquidity strengthens during recovery phases.
Lawant’s observations align with comments from Matt Hougan, CIO of Bitwise, who described the market’s liquidity as resembling a “coiled spring.” Glassnode echoed this sentiment in a report released before the Fed’s announcement.
The report stated that this coiled spring formation happened because Bitcoin’s price remained compressed within a “well-defined range” for six months. Only August 2023 and May 2016 had tighter 180-day price ranges than the current one.
The report emphasized that macroeconomic events, such as the Fed’s rate cut, often release the “pressure” built up during this period, leading to increased market volatility.
Signs of Market Stability
Ki Young Ju, CEO of CryptoQuant, pointed out that institutions are not heavily shorting Bitcoin. This trend reflects an improvement in market conditions. He noted that CME futures net positions have dropped by 75% since April, nearing levels last seen in early October 2023.
Glassnode also reported that market inflows and outflows have quieted, indicating that Bitcoin has reached a state of “equilibrium.” Additionally, net realized profit and loss figures are now balanced, with the total realized profit and loss declining significantly since Bitcoin’s all-time high in March. These metrics suggest low buying pressure in the current price range.
Furthermore, Glassnode indicated that the “Hot Supply” of Bitcoin—holdings likely to be transferred—is notably low, comprising only 4.7% of the on-chain value. This indicates further constraints on supply.
The report also pointed out that the stablecoin supply has risen to $160.4 billion. This increase could inject purchasing power into the market, creating tension between stagnation and demand. For this scenario to unfold, the stablecoin supply must actively rotate in the market, triggering the coiled spring dynamics.
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