Following Bitcoin’s recent halving event, market analysts are closely eyeing the role of liquidity in shaping the cryptocurrency’s trajectory over the coming months.

According to insights from Kaiko, the strengthening liquidity could support a sustained rise in bitcoin’s price.

Bitcoin’s Liquidity Rebounds

Liquidity refers to the ease with which an asset can be bought or sold without significantly impacting its price. Recent data suggests that BTC’s liquidity has been steadily improving since the lows witnessed in the aftermath of the FTX collapse, particularly with the approval of spot Bitcoin ETFs.

According to Kaiko, improved liquidity is a positive development for Bitcoin, as it can mitigate price volatility and reduce the impact of large sell-offs. Strong liquidity is essential for supporting a prolonged positive trend in bitcoin’s price trajectory and increasing market confidence and demand.

Since the halving on April 20th, bitcoin’s aggregated market depth has shown promising growth, increasing from $323.91 million on April 14th to $419.97 million by April 22nd.

However, despite the overall positive trend in liquidity, there are concerns regarding weekend trading activity. Historically, weekend and overnight liquidity management has posed challenges for crypto markets, leading to a consistent decline in bitcoin’s weekend trading volumes over the past three years.

Although the halving did not immediately impact weekend trade volumes, with daily numbers hovering around $10 billion during the first after the event, a drop in this metric could reduce the positive effects of strengthening liquidity.

Despite the optimism surrounding the spot Bitcoin ETF approvals, improving liquidity conditions, and higher transaction fees, macroeconomic uncertainties prevail, introducing uncertainty on the post-halving trajectory.

Macroeconomic Factors

Previous Bitcoin halvings have coincided with periods of low-interest rates and stable inflation, supporting subsequent bull runs.

Kaiko notes that between 2009 and 2016, the U.S. Federal Reserve maintained rates around 0.25%, briefly raising them to 2.5% in 2019 before reverting to 0.25% by the third halving in 2020.

Low rates encourage investment in risk assets like bitcoin. While BTC is sometimes viewed as a safe haven, it typically benefits from lower rates due to its correlation with risk assets.

Moving forward, the halving alone won’t fuel a sustained bull run. The asset must attract new investors, likely through the U.S. and upcoming Hong Kong spot Bitcoin ETFs, to sustain a bullish trend. Thus, improving liquidity and demand will be vital for bitcoin’s value proposition in the coming months.