Is High-Frequency Trading the Reason Bitcoin Has Become Boring?

The Bitcoin market is getting quieter with the passing time, and it has started to worry about the investors and traders. The volatility levels of Bitcoin trading have touched the levels not seen since the year 2017. One of the reasons behind Bitcoin falling behind in the race with other cryptocurrencies is because the investors are diversifying their crypto portfolio. Many investors are now looking at altcoins, such as Cardano and Chainlink. 

One other reason that has contributed to the consolidation of Bitcoin lately is the enhanced presence of HFT firms in recent months in the crypto space. A popular name in the Bitcoin world, Paolo Ardoino, who is currently the Chief Technical Officer at Bitfinex, said that the presence of High-Frequency Trading firms has majorly contributed to the low volatility of Bitcoin in recent months. He said that the HFT has the potential to earn a lot of money because, in the crypto world, it is yet to reach the stage of a zero-sum game, as is the case in the traditional trading platforms. The simple and straightforward trades, such as taking advantage of the spread between two exchanges as well as cross-exchange arbitrage, makes HFT firms highly profitable. 

High-frequency trading does so with the use of advanced technology and pre-set algorithms that have the ability to process high volumes of orders in seconds. Even though it has been present in the crypto world for quite some time, the influx of new investors has been staggering in recent times. The reason behind new HFT firms opening up at a rapid pace is estimated to be triggered by a showcase of Bitcoin holdings by a famous billionaire, Paul Tudor. Bitfinex, one of the big names in the HFT space, recently revealed that above 80 to 90 percent of their revenue is generated through the HFT firms. 

Bitfinex joined hands with Market Synergy recently to offer a high level of cryptocurrency connectivity to its clients. Bitfinex said that the increased presence of HFT firms in the crypto space is a good sign as it showcases the maturity of the digital assets world. If you’re still wondering as to how Bitcoin will lose the market volatility due to the use of HFT, the answer is increased liquidity caused due to high HFT transactions. It is known to push the volatility levels down.

With time, as Bitcoin establishes itself as one of the mature asset class in the market, the volatility it has been witnessing for long would start to mellow down. The CTO of Bitfinex said that liquidity and volatility always share an inverse relationship, and thus, more liquidity stabilizes the volatility and helps to consolidate it. The presence of HFT firms in the crypto space has helped tremendously in flooding the market with liquidity, which has helped balance the buy and sell orders. It is what helps in stabilizing the Bitcoin volatility as well as boosting the overall market efficiency. 

Last year, Bitcoin gained more in ten days than it did the entire year. It has been well-known for its aggressive upward movement in a short period. Fundstrat’s Tom Lee also said that the majority of gains achieved by Bitcoin mostly come in any ten days of the year. However, this ten-day rule seems to be changing with the increasing presence of HFT firms. 

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