Sebastian Sinclair

As the fourth quarter gets underway, the intricate dance of monetary policy, evolving liquidity patterns and inherent market volatility is set to define the crypto market&#8217;s narrative in the coming months, analysts say.



A marked decrease in crypto volatility throughout the third quarter, as highlighted in Kaiko&#8217;s Quarterly Market <a href="https://research.kaiko.com/insights/breaking-down-q3s-top-5-trends">Report</a> last week, suggests the asset class may either be reaching maturity or experiencing dampened activity, it said.



Crypto volatility consistently decreased in the last quarter, reaching its lowest point in years by the end of September. A slide in volatility has persisted since mid-2022 following the downfall of several major industry players including Terra, Celsius and Three Arrows Capital.



According to the latest <a href="https://99bitcoins.com/bitcoin/historical-price/volatility/">Bitcoin Volatility Index</a> figures, the asset’s 30-day estimate has dropped to levels not seen since March 2019 to 0.57%. The index quantifies the daily variation in bitcoin&#8217;s price compared to its initial value.



As a result, bitcoin&#8217;s (<a href="https://blockworks.co/price/btc">BTC</a>) spot volume for the third quarter has declined to $6 billion, marking a consistent drop from $7 billion in Q2 and $13 billion in Q1.



Even the court’s decision regarding Grayscale at the end of August, which <a href="https://blockworks.co/news/grayscale-sec-decision-bitcoin-etf">mandates</a> the SEC to reevaluate Grayscale&#8217;s proposal and is thought to boost the chances of a <a href="https://blockworks.co/news/bitcoin-etf-race-news">BTC ETF</a> spot approval, has failed to lead to notable price shifts.



The market also appears to be moving towards a greater concentration of liquidity, Kaiko highlighted.



Data shows that Binance now accounts for 30.7% of global market depth and an astonishing 64.3% of the total trade volume. This comes into sharper focus when noting that the top eight crypto exchanges hold more than 90% of the market depth and 89.5% of the trading volume.



“Liquidity concentration is a natural phenomenon that ultimately benefits individual traders, giving them better prices for their orders,” Kaiko said in its report. “However, because crypto markets by nature emphasize decentralization, liquidity concentration, especially on centralized exchanges, is worrying.”



In light of the asset class’ centralized connection, Bloomberg analyst Mike McGlone said last week the Federal Reserve&#8217;s implicit influence over bitcoin has largely been due to its nature as a round-the-clock leading indicator within the wider financial landscape.&nbsp;



The observed liquidity redirection away from bitcoin suggests a potential correction ahead, McGlone said in a <a href="https://twitter.com/mikemcglone11/status/1709134080233668900/photo/1">social media post</a>.



&#8220;The bottom line for bitcoin at the start of 4Q may be that liquidity remains negative, with price implications,&#8221; McGlone posted. &#8220;Coming of age in a zero interest-rate world, the crypto hangover could be enduring as global rates continue to rise.&#8221;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Bitcoin liquidity, increased market volatility pose headwinds

Casey Wagner

<div id="highlights-block_61e8bfbe7405d" class="highlights">
 <ul>
 <li>As bitcoin miners move to new countries, efforts to use renewable energy may increase</li>
 <li>Miners may start to exit Kazakhstan, the second-largest mining territory, experts anticipate</li>
 </ul>
 
</div>



As the U.S. House of Representatives prepares to hear from cryptocurrency mining executives on Thursday, the future of the industry has been called into question by political happenings across the world in Kazakhstan.  



The House Committee on Energy and Commerce is set to play host to mining execs Thursday afternoon. The hearing, “Cleaning up Cryptocurrency,” is the first time members of Congress have heard from miners.&nbsp;



Meanwhile, the mining hub of Kazakhstan is grappling with its worst unrest in three decades and ensuing internet outages — leading experts to wonder if the miners might move elsewhere.&nbsp;



“Miners have learned to take political risks seriously,” said Nic Carter, partner at crypto venture capital firm Castle Island Ventures. “I think the internet outage and the possible revolution that&#8217;s occurring there might spook miners a little bit, but really it was the energy authorities cracking down on miners.”&nbsp;



The rising cost of energy, according to Carter, is likely to push miners out of Kazakhstan — the second-largest mining hub in the world, according to <a href="https://ccaf.io/cbeci/mining_map">data</a> from the University of Cambridge.



But it’s not yet clear where they might go. A westward shift, which has started in recent months, indicates a likely move toward renewable energy, experts said.&nbsp;



It remains to be seen how U.S. regulators will react. Those testifying in the House hearing include Ari Juels, professor at Cornell Tech; Soluna Computing CEO John Belizaire; Bitfury CEO Brian Brooks and others.&nbsp;



More concrete details on how the U.S. will regulate mining are expected in the coming months as cryptocurrency continues to come into the mainstream, Congress has warned.&nbsp;



But an all-out ban is unlikely. China, which began cracking down on cryptocurrency in 2017, announced a mining ban in June 2021, citing energy concerns. The decision pushed much of the industry out of the country.



“In September 2019, China was about 75% of the hash rate while the US was under 4%, now the US is in the lead,” said Martha Reyes, head of research at Bequant. “The <a href="https://cms.blockworks.co/chinas-global-bitcoin-hash-power-slips-to-0-heres-why/" target="_blank" rel="noreferrer noopener">China crackdown</a> has been a blessing in disguise in many ways. Even though part of the mining energy in China was renewable, there&#8217;s a lot more awareness and the industry is more proactive.” 



Most miners looking to move are headed to countries like the US, Iceland, Canada and Scandinavian nations, according to Garrette David, advisor to the Cosmos Network. That points towards a shift toward more environmentally friendly operations. 



“There&#8217;s a ton of initiatives around renewable energy mining and offsetting of mining in general,” David said. “It is going to depend on where you can get renewable energy.”&nbsp;



Industry advocates have made efforts in recent years to shift the narrative around mining and energy use. The Bitcoin Mining Council, MicroStrategy’s joint venture with Galaxy Digital and other companies, is the latest effort to push a sustainable narrative.&nbsp;



“The Bitcoin Mining Council is skewed towards the US and the Nordic countries and of course they self-report, so it&#8217;s going to be biased,” Reyes said. “But, there is now more transparency about mining and energy consumptions, and I think that&#8217;s what will matter to investors.”

Bitcoin Miners Eye Kazakhstan as Industry Execs Make US Case

In the weekly roundup episode of Blockworks&#8217; podcast &#8220;<a href="https://youtu.be/h4Go_Tw_vPk" target="_blank" rel="noreferrer noopener">On the Margin</a>,&#8221; Mike and Mark spend a lot of time on Bitcoin&#8217;s recent run above $55,000. They take a look at open interest and the rolling 1 month basis on Bitcoin futures on CME compared to other offshore exchanges like Deribit and Huobi, and what that says about institutional flows. They also take a look at Bitcoin&#8217;s price action compared to previous cycles in 2013 and 2017, and the recent resumption of the seasonality trend and divergence from equities. 



Later in their talk, they dive deep into food prices, rising energy prices and depleted coal reserves in China and India, and what that says about the current state of geopolitics. 



They also cover:



<ul class="wp-block-list"><li>Bitcoin&#8217;s price action compared to previous 2013 and 2017 cycles</li><li>Recent resumption of the seasonality trend and divergence from equities</li><li>George Soros&#8217; family office and crypto</li><li>The FDIC reportedly taking a look at stablecoin deposits</li></ul>



Watch the full episode below! 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Institutional Money Drives Bitcoin Higher, China Grapples with Energy Crisis | Round Up" width="1024" height="576" src="https://www.youtube.com/embed/h4Go_Tw_vPk?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



&#8220;On the Margin&#8221; is a two-part show.&nbsp;Once a week, Mike interviews industry experts, and then at the end of the week he is joined by co-host Mark Yusko where they break down the top crypto and macro stories. Episodes go live every Wednesday and Saturday morning.



Subscribe to &#8220;On the Margin&#8221; today on <a href="https://podcasts.apple.com/us/podcast/lyn-alden-explains-connection-between-inflation-bitcoin/id1558223079?i=1000513411286" target="_blank" rel="noreferrer noopener">Apple</a> or <a href="https://spoti.fi/3bTa9uw" target="_blank" rel="noreferrer noopener">Spotify</a>, or watch episodes on <a href="https://youtube.com/playlist?list=PLvER9nHSRN3xVs_p-dl7L7K_ZgL6lSudu" target="_blank" rel="noreferrer noopener">YouTube</a>.



Are you a UK or EU reader that cant get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.