Bitcoin's price may not be as high as some investors would wish – but the digital asset's volatility is perfect for high-speed traders, according to an executive at one UK-based trading firm.
In an interview with The Block on Monday, B2C2 founder Max Boonen said bitcoin's volatility has hit a sweet spot for market-making firms. Such traders sit between investors, offering quotes at which market participants can purchase bitcoin. High-speed trading firms and market-making firms earn money on the spread between buy and sell orders.
Volatility has soared across all asset classes as fear of the impact of coronavirus continues to grip global markets. Cboe's Volatility Index is up 69% over the last month.
"The volatility at the moment I think is quite Goldilocks," Boonen said. "In my opinion, the volatility we have in the market is very good. Any market-making firm should be making a lot of money."
Realized 10-day volatility for the digital asset has come down from a peak above 300% in the middle of the month to 125% on Monday, more than double from where it stood before bitcoin crashed on March 13. A higher realized 10-day volatility, the higher bitcoin's price swings over the time frame.
"We had our record day ever on the 13th," Boonen said. "The 12th was a big day but it was really when the market touched around $4,000 they reassessed their view. That's where you get the big volume."
Still, current market conditions aren't favorable for everyone, as noted by Skew's Emmanuel Goh. Liquidity in the market has dried up, as indicated by the aggregated open-interest across bitcoin futures markets. When liquidity dries up, it is harder for traders to enter and exit positions.
"The 12th of March sell-off has inflicted significant pain to some investors and market-makers, we haven't seen the number of open futures positions rebounding since then," Goh told The Block.