The Bitcoin (BTC) market has been quiet lately. Too quiet…
Since Tuesday, bitcoin volatility has dropped to a level that has not been reached since 2017. Bitcoin has been left behind in recent weeks Investors have applied for altcoins like Chainlink (LINK) and Cardano (ADA).
A possible explanation for the consolidation of Bitcoin could be the increasing presence of high frequency trading companies (HFT) in cryptocurrencies in the past few months. When you talk to Cointelegraph, Paolo Ardoino, CTO of Bitfinex, said he believes that HFT is one of the main reasons for Bitcoin’s low volatility.
“In the crypto space, we revert to the old days of HFT before it became the zero-sum game it has become today. In cryptocurrency HFT, companies can make a lot of money by using relatively simple games like cross-exchange arbitrage and take advantage of the difference between one exchange and another. ”
HFT and cryptocurrencies
HFT is a trading method that uses algorithms to trade a large number of orders in a fraction of a second. It’s been in the crypto space for a long time. But just as billionaire Paul Tudor Jones recently announced his Bitcoin holdings, other institutional investors are increasingly joining the market. This could explain the increased use of HFT.
Bitfinex, which claims to be “huge for HFT in crypto”, recently revealed this HFT companies have now generated between 80 and 90 percent of Bitfinex’s volume. Bitfinex has partnered with Market Synergy and offers “standard institutional cryptocurrency connectivity”.
Bitfinex concludes The increasing use of HFT means an increasing “maturity in the area of digital assets”. But why should Bitcoin’s volatility decrease with increasing use of HFT? Ardoino explains that The increase in liquidity due to the increase in HFT business leads to low volatility:
“As Bitcoin becomes an established asset class, we expect the high volatility associated with cryptocurrencies to subside,” he said. “In general, there is an inverse correlation between liquidity and volatility. In other words, higher liquidity tends to result in lower price volatility.”
“The growing presence of HFT companies in the crypto space seems to have given the crypto exchanges more liquidity.”, He says. “This offers enough orders for both sides of the order book and increases market efficiency, which contributes to a continued consolidation of low volatility prices in Bitcoin.”
Bitcoin is known to move aggressively for a short time. Last year, Fundstrat’s Tom Lee reminded investors Most Bitcoin (BTC) results are achieved on the top ten trading days of the year. However, the increasing presence of the HFT can also change the “top 10 days rule”.
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