The amount of cryptocurrency trade has decreased as interest in the digital currency has waned as the price of bitcoin has fallen.
Cryptocurrencies are in a slump this summer as they work their way through a two-month correction period following a string of negative news.
The largest exchanges, including Coinbase, Kraken, Binance, and Bitstamp, saw their trading volumes drop by more than 40% in June according to CryptoCompare, a crypto market data provider, which cited lower prices & lower volatility as the reason for the drop.
The price of bitcoin fell to a monthly low of $28,908 in June, according to the report, and was down 6% by the end of the month. On June 22, the daily volume maximum was $138.2 billion, down 42.3 percent from the intra-month high in May.
The report pointed to China as a major catalyst, according to Reuters, which first reported it on Monday. China's current crackdown on the business, one of many over the years, has had a greater impact than ever before. However, investors and professionals in the cryptocurrency ecosystem believe bitcoin and other cryptocurrencies will continue to rise in value over time.
“The Chinese crackdown has caused a lot of concern, which is reflected in the markets,” said Teddy Vallee, Pervalle Global's chief investment officer. “The digital asset ecosystem has taken a punch in the face and is now fighting against the ropes instead of in the ring. When there are huge sell-offs, participants are typically concerned and withdraw their chips.”
Vallee also stated that he is still not witnessing substantial movements off exchanges, that funding rates are still negative, and that the number of new wallets is decreasing.
Factors behind the slowdown
China halted cryptocurrency trading at the end of June as it prepared to introduce its own state-backed digital currency. This resulted in the closure of mining operations in a number of provinces that had previously housed 50 percent to 60 percent of all bitcoin mining power.
Miners were not transacting as much with the bitcoin they produced when they left China, according to Gabor Gurbacs, director of digital assets strategy at VanEck.
Furthermore, according to Ben Forman, managing partner at alternative investment firm ParaFi Capital, the emerging ESG narrative around bitcoin's proof-of-work consensus mechanism and negative regulatory undertones from the Financial Action The Intergovernmental Task Force on Anti-Money Laundering, or Task Force, is a non-governmental organisation that monitors money laundering have dragged the mood down even further in the markets. ESG stands for environmental, social, and governance factors.
“Sentiment plunged to single-digit levels on a scale of 1 to 150 after these tales began to spread through the market in May,” said Nick Mancini, research analyst for crypto sentiment analytics platform Trade the Chain. “As a result, bitcoin trade volume has dropped by over half since its high, and it's down even more than 32% from its June average.”
Gurbacs also said that, even in equities, summer can be a time of lesser volume, and that investors may still be feeling the effects of the crypto market's massive losses this year.
He also mentioned that the price of bitcoin has climbed as high as $60,000 and the price of ether has climbed as high as $4,000 this year, attracting a lot of fresh attention and investors into cryptocurrency who haven't yet experienced a bitcoin bear market.
"People are sick of the rock pools," Gurbacs explained.
“A lot of people invested upwards and a lot of new people invested at the top, and they lost money,” he added as cryptocurrencies hit all-time highs this year. “We can't expect the same quantities with half of the market gone when the market is essentially a lot of newcomers who got spooked.”
The volume of business is still higher than it was a year ago
Despite the sharp decrease in trade volume, it is still significantly greater than last year, according to Clara Medalie, research lead at crypto market data provider Kaiko.
“Volumes declined in June on practically every exchange,” Medalie observed, “but overall volumes are still orders of magnitude more than they were a year ago today.”
She continuedy, "June volume is still in the top five months of volume ever recorded." While the drop was large in contrast to May, the comparison is unfair because May saw the highest quantities ever recorded due to historic liquidation activity. The volumes have returned to early 2021 levels, although they are still tremendous when compared to 2020.”
Mancini of Trade the Chain believes that the crypto market is still more optimistic than bearish, and that volatility and volume will return to past highs.
“On the bitcoin daily candle, the Bollinger Bands are currently tightening, similar to what we observed in July 2020, which concluded in significant bullish market action,” he stated. “We believe bitcoin is destined for growth rather than decline, with more institutions launching crypto trading and research sections, sovereign governments embracing bitcoin as a currency, and miners moving to more democratic countries,” says the report.
Bitcoin derivatives peaked in May at $230 billion before plummeting to $45 billion on July 9th, according to Trade the Chain.
“The one positive set of news from the derivatives markets is that the bitcoin options put to call ratio has dropped to 0.60 from a high of 0.68 in June, indicating that traders are becoming less negative as the months pass,” Mancini added.