Cryptocurrency trading volume plunges as interest wanes following bitcoin price drop

Cryptocurrency trading volume plunges as interest wanes following bitcoin price drop

Art at the cryptocurrency conference Bitcoin 2021 Convention at the Mana Convention Center in Miami on June 4, 2021. Marco Bello | AFP | Getty Images

Cryptocurrencies are in a summer slump as they navigate a two-month correction period following a string of negative stories. Trading volumes at the largest exchanges, including Coinbase, Kraken, Binance and Bitstamp, fell more than 40% in June, according to data from crypto market data provider CryptoCompare, which cited lower prices and lower volatility as the reason for the drop. In June the price of bitcoin hit a monthly low of $28,908, according to the report, and ended the month down 6%. A daily volume maximum of $138.2 billion on June 22 was down 42.3% from the intra-month high in May. The report pointed to China as a major catalyst, according to Reuters, which reported on it earlier Monday. China’s latest of many efforts over the years to crack down on the industry have had a greater impact than ever before. Investors and experts in the cryptocurrency ecosystem still see a long-term positive trend for bitcoin and other cryptocurrencies, however. “The Chinese crackdown has caused a lot of fear, which is showing up in markets,” said Teddy Vallee, chief investment officer at Pervalle Global. “The digital asset ecosystem got punched in the face, so it’s currently up against the ropes versus fighting in the middle of the ring. Typically when you have large sell-offs, participants are quite fearful and pull back their chips.” Vallee added that he still isn’t seeing large flows back off exchanges, funding rates are still negative, the number of new wallets is lower.

Factors behind the slowdown

At the end of June, China ordered a halt to cryptocurrency as it prepares to launch its own state-backed digital currency. That shuttered mining operations across various provinces that had hosted 50% to 60% of all of bitcoin’s mining power. Gabor Gurbacs, director of digital assets strategy at VanEck, noted that as miners left China, they weren’t transacting as much with the bitcoin they’ve mined.

Additionally, the emerging ESG narrative around bitcoin’s proof-of-work consensus mechanism and negative regulatory undertones from the Financial Action Task Force, the intergovernmental anti-money laundering watchdog, have dragged the mood down even further in the markets, Ben Forman, managing partner at alternative investment firm ParaFi Capital, told CNBC. ESG stands for environmental, social and governance factors. “Once these stories began to permeate through the market in May, sentiment dropped to single-digit levels on a scale of 1 to 150,” said Nick Mancini, research analyst for crypto sentiment analytics platform Trade the Chain. “Eventually, this resulted in the trading volume for bitcoin dropping by nearly half since its peak, and it’s further down 32% from its June average.”

Trade the Chain

Gurbacs also said that summer can be a time of lower volume, even in equities, and that investors may still be feeling the pain after the crypto market has lost so much of its value this year. This year too, he added, the price of bitcoin climbed as high as $60,000 and ether as high as $4,000, which brought a lot of new interest and new investors into cryptocurrency that haven’t weathered a bitcoin bear market yet. “People are getting tired of the rock pools,” Gurbacs said. When cryptocurrencies hit their all-time highs this year “a lot of people invested upwards and a lot of new people invested at the top, and they lost money," he added. “Half the market is gone, we can’t expect the same volumes when the market is basically a lot of people who are new to the space who got spooked.”

Volume still higher than a year ago

Despite the dramatic drop in trading volume, it’s still much higher than it was last year, Clara Medalie, research lead at crypto market data provider Kaiko. “Volumes plunged in June on pretty much every exchange, however, overall volumes are still magnitudes greater than they were one year ago today,” Medalie told CNBC.

“June volume still ranks in the top five months of volume ever recorded,” she added. “While the drop was steep compared with May, it is an unfair comparison because May saw the highest volumes ever recorded due to unprecedented liquidation events. Volumes have reverted to early 2021 amounts and are still massive compared with 2020.” Mancini of Trade the Chain still sees a more bullish — rather than bearish — outlook for crypto and expects volatility and volume to return to previous highs.

Crypto Trading Volumes Nosedive In June, Down 42%

Crypto trading numbers from top exchanges show that the volume traded in June was down 42% from volumes in May. The report from CryptoCompare shows that the slump was due to a number of factors. Some of these factors include the low price of bitcoin. The digital asset hit the $28,000 region in June. Combined with the continuously falling volatility, total trading numbers saw a large drop.

The report noted that a maximum volume of $138.23 billionaire had been traded on the 22nd of June. This was down 42.3% from the intra-month high in May.

Related Reading | Meitu Records $14.7M Gains From Ethereum, Loses $17.3M In Bitcoin

The numbers which were calculated from spot volumes across the exchanges showed a 42.7% decrease. These drops are due to the continuously decreasing price of cryptos and low volatility in the market.

Futures Open Interest Down 40%

Month over month, the futures open interest has been down 40.9%. This translates to a $16.4 billion decrease month over month. The lowest that the futures open interest has been since January 2021.

Total derivatives volumes were also down by 40.7% in June. Showing a tremendous slump from the previous month’s figures. Derivatives volumes are down to a staggering $3.2 trillion from $5.4 trillion the previous month.

Total crypto market cap down 50% from high in May | Source: Crypto Total Market Cap from TradingView.com

The slump continued across the board. Both Bitcoin and Ethereum futures open interest were down 31.8% and 29.3% respectively. Both digital assets have had a two-month-long battle to correct their prices. Bitcoin and Ethereum have both lost about 50% of their all-time highs. Therefore, this does not seem to be out of line as we continue to see a downtrend in the market.

Top Crypto Exchanges See Decreasing Trade Volumes

Figures from top exchanges like Binance show that trading volume has seen a massive decrease in just one month. Binance, which is a Grade A exchange, saw a decrease of $668 billion. A staggering 56% decrease from May.

Following on, Huobi Global, also a Grade A exchange, saw volumes slump 40.2% in June. About a $162 billion less traded volume than the previous month.

OKEx, a Grade BB exchange, was not left out of the bloodbath. The exchange saw its trading volumes lose $141 billion in June. Which translates to a 41.6% decrease month over month.

Related Reading | Crypto Exchange Binance Blocks SEPA Transfers, Stops Euro Deposits

Despite the growing popularity of cryptocurrencies, the volumes continue to stay down. The total crypto market cap is down 50% from its high back earlier in the year.

Crypto trading is down generally across the board. This data could mean that people are getting out of the market. Or it could mean that more people are transitioning from being traders to holding their coins and waiting for the next bull run.

Coin prices continue to remain low. Corrections are taking longer than investors are expecting. And massive FUDs continue to rock the market, creating fear and panic amongst investors.

Featured image from Crypto News, chart from TradingView.com

Bitcoin Is Down 45% From Its High – Is it Time to Buy?

Holders of Bitcoin (CRYPTO:BTC) have been on a wild ride over the last few months. From the high it touched in mid-April, its price has fallen by more than 45%, erasing $500 billion in market value. But with that plunge in the rear-view mirror, many people are now asking the question: Is this a good time to buy Bitcoin?

Before making any hasty decisions on that front, investors should consider the pros and cons of owning this cryptocurrency.

The bull case for Bitcoin

Bitcoin is an electronic cash system powered by blockchain, a type of distributed database that could revolutionize the financial industry. Specifically, blockchain eliminates the need for traditional financial institutions (e.g. banks) to keep the records or facilitate transactions. Instead, it relies on a distributed network of computers that manage transactions, mint new tokens, and maintain the ledgers that make Bitcoin secure. Ultimately, this means that transaction fees are sharply reduced and cross-border transactions are accelerated, creating a more efficient financial system. These are major selling points for Bitcoin and other cryptocurrencies.

Moreover, Bitcoin has achieved greater mindshare than any other cryptocurrency. It became the first widely adopted digital token after its launch in 2009, and remains the most popular cryptocurrency in terms of active addresses, and the largest crypto in terms of market value. In addition, Bitcoin has also seen a flurry of mainstream adoption in the past few years as fintech firms like PayPal, Square, and MercadoLibre have integrated it into their platforms.

However, the most compelling case for Bitcoin centers on its scarcity. Specifically, the computer code that underlies it caps the total number of tokens that can ever be mined to 21 million. Once that limit is reached – which is expected to occur sometime around the year 2140 – it will be impossible to create more Bitcoin tokens. This makes Bitcoin a sort of digital equivalent to gold or silver, in the sense that both derive much of their value from their rarity.

As a final thought, Ark Invest CEO Cathie Wood recently expressed her belief that the value of a Bitcoin token will eventually rise to $500,000 – roughly 14 times its current price. Given Wood’s reputation as one of Wall Street’s current hot stock pickers, investors may want to pay attention to her opinions.

The bear case against Bitcoin

One of the most compelling arguments against buying Bitcoin is its volatility. The token price has been as high as $64,800 and as low as $9,100 during the past 52 weeks. Moreover, it recently lost half of its value in just two months, and wild fluctuations like this are nothing new for the cryptocurrency. For instance, investors saw Bitcoin’s price plunge 80% in 2018, from $17,500 in January to $3,200 by December. That type of volatility makes Bitcoin a very risky investment.

Bitcoin naysayers also cite its extremely energy-intensive mining process as a headwind to its mainstream adoption. Indeed, research from Cambridge University calculates that the amount of energy consumed annually in mining Bitcoin is 67 terawatt-hours (TWh). That’s roughly 0.27% of all electricity produced worldwide in a year, and more than is used to power the entire country of Austria.

Finally, Bitcoin is far from the only blockchain-powered cryptocurrency that could disrupt the traditional financial system. Thousands of others exist, and many – like Ethereum and Polkadot – have more utility than Bitcoin, as they incorporate smart contracts and decentralized financial applications.

The verdict

There are good arguments on both sides of this debate – but personally, I’m inclined to agree with Wood. I wouldn’t be so bold as to put a $500,000 price target on Bitcoin, but I do believe it represents a unique asset.

As the original and most popular cryptocurrency, it has an edge over other digital tokens. And by eliminating the need for central oversight by governments and financial institutions, it differentiates itself from fiat currencies. Over time, I believe those unique aspects will drive demand for Bitcoin. And given its finite supply, increasing demand should drive Bitcoin’s price higher.