Cryptocurrency trading volume plunges as interest declines

Cryptocurrencies are in a summer crisis as they go through a two-month period of correction after a series of negative stories.

Trading volumes on the biggest exchanges, including Coinbase, Kraken, Binance and Bitstamp, fell more than 40% in June, according to data from crypto-market data provider CryptoCompare, which cited prices over low and lower volatility as the reason for the decline.

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 high of $ 138.2 billion on June 22 was down 42.3% from the May high.

The report pointed to China as a major catalyst, according to Reuters, which spoke about it earlier on Monday. The latest of many efforts by China over the years to crack down on the industry has had a bigger impact than ever. However, investors and experts in the cryptocurrency ecosystem still see a positive long-term trend for bitcoin and other cryptocurrencies.

“The Chinese crackdown has aroused a lot of fear, which is manifesting itself in the markets,” said Teddy Vallée, director of investments at Pervalle Global. “The digital asset ecosystem has been given a punch in the face, so it is currently facing the ropes against fighting in the middle of the ring. Typically, when you have massive sales, participants are quite fearful and pull their backs. tokens. “

Vallée added that he still does not see significant return flows on the exchanges, funding rates are still negative, the number of new portfolios is lower.

In late June, China ordered the cryptocurrency shutdown as it prepares to launch its own state-backed digital currency. This shut down mining operations in various provinces that had hosted 50% to 60% of all of Bitcoin’s mining power.

Gabor Gurbacs, director of digital asset strategy at VanEck, noted that as miners left China, they weren’t doing as many transactions with bitcoin as they had mined.

Additionally, the emerging ESG narrative around bitcoin’s proof-of-work consensus mechanism and negative regulatory nuances from the Financial Action Task Force, the intergovernmental anti-money laundering watchdog, have further depressed the mood 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 started to hit the market in May, sentiment fell to single-digit levels on a scale of 1 to 150,” said Nick Mancini, research analyst for the analytics platform Trade the Chain crypto sentiment. “In the end, this resulted in a drop of almost half in bitcoin trading volume since its peak, and it’s still down 32% from its June average.”

Gurbacs also said summer can be a time of declining volumes, even for stocks, and investors can still feel the pain after the crypto market has lost so much value this year.

Also this year, he added, the price of bitcoin has climbed to $ 60,000 and ether to $ 4,000, which has generated a lot of interest and new investors in crypto. currency that has not yet resisted the bearish bitcoin market.

“People are getting tired of rock pools,” Gurbacs said.

When cryptocurrencies hit their all-time highs this year, “a lot of people invested on the high 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 as the market is made up mostly of people who are new to the space and who have been scared.”

Despite the dramatic drop in transaction volume, it is still much higher than last year, Clara Medalie, head of research at Kaiko, a data provider in the crypto market.

“Volumes plunged in June on just about every trade, however, overall volumes are still higher than they were a year ago today,” Medalie told CNBC.

“June’s volume still ranks among the first five months of volume on record,” she added. “Although the decline was significant from May, this is an unfair comparison as May saw the highest volumes on record due to unprecedented liquidation events. early 2021 and are still huge compared to 2020. “

Trade the Chain’s Mancini still sees a more bullish – rather than bearish – outlook for crypto and expects volatility and volume to return to previous highs.

“The bitcoin daily candle’s Bollinger Bands are now tightening in a very similar fashion to what we saw in July 2020, resulting in explosive bullish price action,” he said. “We believe that with more institutions publicly announcing crypto trading and research divisions, with sovereign nations adopting bitcoin as a currency and miners moving to more democratic countries, bitcoin is poised to grow. instead of decreasing. “

Bitcoin derivatives peaked at $ 230 billion in May before falling to $ 45 billion on July 9, according to Trade the Chain.

“The only positive news from the derivatives markets is that the ratio of on-call bitcoin options now stands at 0.60, down from 0.65 in June, meaning traders are becoming less bearish over time. months, ”Mancini said. .