Morgan Stanley has reported that a string of forced closures in the banking sector has led to increased U.S. dollar liquidity, which in turn has supported the rally of Bitcoin. While this may have contributed to Bitcoin’s gains, there are other factors at play that have influenced its price movement. According to the bank’s research report, the trading order book liquidity of Bitcoin is currently at its lowest level in a year, meaning that lower volumes can lead to larger price moves than before.
The report also noted that Binance, one of the largest crypto exchanges, now accounts for 80% of Bitcoin’s trading volume, indicating that traders on the platform are setting the daily price for the cryptocurrency. Additionally, the issuance of stablecoins, which are cryptocurrencies pegged to the U.S. dollar, has risen over the past year. Tether, the largest stablecoin, has seen a 10% increase in issuance in the last month and a 16% increase this year.
However, this increase in Tether issuance has not been enough to offset the reduction in other stablecoins such as Binance USD and USD Coin. The flow of stablecoins is indicative of money entering or leaving the crypto ecosystem, and the bank notes that the decrease in other stablecoins could be a sign of investors moving out of the cryptocurrency market.
The report also highlights that over half of Tether’s total issuance and 70% of recent issuance is on the TRON blockchain. TRON is currently the subject of an SEC lawsuit, which may have implications for the stability of Tether. The report adds that exchanges Kraken and Binance appear to be the main recipients of new Tether issuance.
While there are various factors that are influencing the price movement of Bitcoin, the Morgan Stanley report suggests that the increased U.S. dollar liquidity is providing some support to the cryptocurrency. Nonetheless, the low trading order book liquidity of Bitcoin suggests that its price is vulnerable to sharp price swings, and investors should exercise caution.
To summarise, the cryptocurrency market continues to be extremely volatile, therefore prospective investors should proceed with caution. But, if more institutional investors enter the market and regulators make the legal status of cryptocurrencies more clear, the market may become more stable and mature in the future.