Trading volumes at the major crypto exchanges fell by 42.3% in June after the price of Bitcoin hit a monthly low of $28,908. Despite the dramatic drop, the trading volume is still much higher than a year ago.
Cryptocurrencies are suffering a two-month correction period following a series of negative news. By the crypto market data provider CryptoCompare, trading volumes at the largest cryptocurrency exchanges, such as Coinbase, Binance, Kraken, and Bitstamp, fell in June by over 40% because of lower prices and lower volatility.
The price of Bitcoin plunged in June to $28,908 and ended the month down 6%, as a daily volume peak of $138.2 billion on June 22 lowered 42.3% from the record high in May.
Reuter’s earlier report pointed to China as a major cause because of its greater than before efforts to crack down on the crypto industry in the country. However, investors and experts in the crypto space still see a long-term positive trend for Bitcoin and other cryptocurrencies.
“The Chinese crackdown has caused a lot of fear, which is showing up in markets,” Teddy Vallee, chief investment officer at Pervalle Global, said. “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.”
He also added, there are no large flows back off exchanges, funding rates are still negative, the number of new wallets is lower.
One of the top factors behind the slowdown, experts named a cryptocurrency halt in China as it prepares to launch its own state-backed digital yuan (CBDC), which caused shut down of mining operations across the country that recently had hosted over 50% of all the world Bitcoin’s mining power.
Gabor Gurbacs, director of digital assets strategy at VanEck, noted that miners leaving China weren’t transacting much of the Bitcoin they’ve mined.
By the words of Ben Forman, a managing partner at alternative investment firm ParaFi Capital, growing environmental concerns over Bitcoin’s mining mechanism as well as negative signals from regulators around the world and anti-money laundering watchdogs, like the Financial Action Task Force (FATF), have dragged down the mood of investors in the markets.
As said Nick Mancini, research analyst for crypto sentiment analytics platform Trade the Chain:
“Once these stories began to permeate through the market in May, sentiment dropped to single-digit levels on a scale of 1 to 150. 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.”
Gurbacs also added that summer could slow down trading volumes and that investors may still be in pain after the crypto market has lost so much of its value by the last months. The price of Bitcoin climbed as high as $60,000 and Ether as high as $4,000 last month, which has brought a lot of new investors into cryptocurrency, so these newcomers haven’t weathered a bear trend on the crypto market yet.
“People are getting tired of the rock pools,” Gurbacs said. “A lot of people invested upwards, and a lot of new people invested at the top, and they lost money. 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.”
Despite the dramatic fall of 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,” she said on CNBC.
“June volume still ranks in the top five months of volume ever recorded,” Medalie 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 than a bearish outlook for crypto and expects volatility and volume to return to previous highs.
“The Bitcoin daily candle Bollinger Bands are now tightening very similar to what we saw in July 2020, which resulted in explosive bullish price action,” he said. “We believe that with more institutions publicly announcing crypto trading and research divisions, sovereign nations adopting Bitcoin as a currency, and miners moving to more democratic nations, Bitcoin is poised for growth instead of shrinking.”
In May, Bitcoin derivatives reached a peak at $230 billion before waning to $45 billion on July 9, according to Trade the Chain.
“The one positive set of news from the derivatives markets is that the Bitcoin options put to call ratio is now sitting at 0.60, from a high of 0.65 in June, which means that traders are becoming less bearish as the months’ progress,” Mancini said.
As reported on June 28, CoinShares CSO Meltem Demirors sees the current fall of the crypto market as a correction that shakes out weaker investors. She believes that it is just an ordinary correction, which would wipe out investors with “paper hands.”