Bitcoin price continued to rally this morning and is changing hands at $28,229, up roughly 1% from its price a day earlier. In a week, its price has jumped by 17%.

Trading volumes at cryptocurrency exchanges have skyrocketed to $51 billion, their highest level in four months, according to data from Kaiko Research. The increase is unevenly distributed across trading pairs and mainly concentrated on the top coins, a phenomenon that analysts have dubbed as “a flight to quality.”

Meanwhile, open interest on bitcoin futures at exchanges reached a yearly high of $12 billion, up by about 7% from a year ago. While open interest can be long or short future prices, CoinDesk states that the current trend indicates a bullish belief in the future of bitcoin price by traders.

The Narrative of a Price Surge  

Depending on where you stand in the crypto narrative, the latest developments are positive or alarming. For enthusiasts, the current rally is vindication of their belief that cryptocurrencies are an alternative to mainstream systems.

Bank crises, interest rate risks, and uneven economic data has fueled uncertainty and volatility in financial markets in recent months. Bitcoin tracked mainstream markets until recently, but it seems to have disconnected from them in the last week. The cryptocurrency registered gains even as crypto-focused banks collapsed.

But the narrative of economic fundamentals does not consider the state of crypto today. The latest price gains in cryptocurrencies have occurred in times of thin liquidity. Traders and whales – investors who hold more than 1,000 BTC in their wallets – are reported to exiting the ecosystem.

According to Kaiko’s report, market depth for bitcoin’s trading pairs dropped lower than levels seen after FTX’s collapse last November post the Silvergate collapse. “Overall, BTC’s rally could be exacerbated by thin liquidity, which makes it easier for market orders to both push up and push down the price of an asset,” the firm wrote in its report.

Risks for Bitcoin  

Another popular explanation for the current jump in prices is that investors are running towards bitcoin, and cryptocurrency, markets because they do not have counterparty risk. This past month’s failures at banks exposed the risk of lending out money to third-party institutions that make risky bets with depositor money and end up with unrealized losses on their balance sheet. Self-custodied bitcoin, the argument goes, is not subject to counterparty risk because it is not lent out or deposited with a counterparty.

There are many problems with this argument.

The main one, however, is the presumption that bitcoin that is in custody with its owner has value. In its current form, bitcoin has no utility besides being an object for speculation. Its perceived value is derived from markets at cryptocurrency exchanges. These exchanges are some of the biggest holders of cryptocurrencies and their share of the overall bitcoin in circulation has increased in recent times.

Cryptocurrency businesses do not hoard bitcoin. Rather, it is a necessary part of their operations. This is because the availability of a ready source of bitcoin ensures liquidity in a nascent and illiquid ecosystem. The peculiarities associated with crypto markets, which include illiquidity, absence of regulation, and hacks, present myriad other risks for bitcoin.