Bitcoin, the world’s largest cryptocurrency by market capitalization, has seen its trading volume drop to its lowest level in more than four years, according to data from CryptoQuant. The decline in volume reflects the lack of interest and enthusiasm among investors, who are waiting for clear signals and catalysts to re-enter the market.
What is Bitcoin Trading Volume and Why Does It Matter?
Bitcoin trading volume is the amount of bitcoin that is exchanged on various platforms, such as spot exchanges, derivatives exchanges, peer-to-peer platforms, and over-the-counter desks. It is an indicator of the liquidity, activity, and sentiment of the market. A high trading volume means that there is a lot of demand and supply for bitcoin, and that the price is likely to be more stable and responsive to market events. A low trading volume means that there is less demand and supply for bitcoin, and that the price is more vulnerable to manipulation and volatility.
Bitcoin trading volume is also influenced by various factors, such as:
- The price of bitcoin: A higher price tends to attract more buyers and sellers, while a lower price tends to discourage them.
- The market cycle: A bull market tends to generate more volume, as investors are optimistic and eager to buy and sell bitcoin. A bear market tends to reduce volume, as investors are pessimistic and reluctant to buy and sell bitcoin.
- The regulatory environment: A favorable regulatory environment tends to boost volume, as investors feel more confident and secure about their transactions. An unfavorable regulatory environment tends to suppress volume, as investors feel more uncertain and fearful about their transactions.
- The innovation and competition: A more innovative and competitive market tends to increase volume, as investors have more options and opportunities to trade bitcoin. A less innovative and competitive market tends to decrease volume, as investors have fewer options and opportunities to trade bitcoin.
How Low is Bitcoin Trading Volume Right Now?
According to CryptoQuant, the total volume of bitcoin held on all exchanges fell earlier this month to its lowest level since 2018 and has struggled to rebound. As of Aug. 26, bitcoin trading volume on all exchanges sat at 129,307 BTC. Earlier in the month, on Aug. 12, it fell to 112,317 BTC, its lowest level since Nov. 10, 2018. It’s now off the March high of 3.5 million BTC by about 94%.
What are the Reasons Behind the Low Bitcoin Trading Volume?
There are several possible reasons behind the low bitcoin trading volume right now, such as:
- The U.S. regulatory crackdown on crypto: The U.S. Securities and Exchange Commission (SEC) has been taking a hard stance against crypto-related products and activities, such as spot bitcoin ETFs, decentralized finance (DeFi) platforms , stablecoins , and lending platforms . These actions have created uncertainty and fear among investors, who are unsure about the legal status and future of their crypto holdings.
- The end of the banking crisis in May: One of the major drivers of bitcoin’s rally earlier this year was the banking crisis in Turkey, which led many people to seek alternative assets such as bitcoin. However, after the Turkish central bank intervened and stabilized the situation, the demand for bitcoin subsided.
- The lack of momentum and innovation: Bitcoin has been stuck in a narrow range between $24,000 and $28,000 for most of August, with no clear direction or catalyst. Moreover, the innovation and competition in the crypto space have slowed down, as many projects are facing regulatory hurdles or technical challenges.
- The seasonality effect: August is traditionally a slow month for trading activity across all markets, as many investors and traders are on vacation or taking a break. This may also affect the crypto market, as there is less news and events to spark interest and excitement.
What are the Implications and Expectations for Bitcoin Trading Volume?
The low bitcoin trading volume has both positive and negative implications for bitcoin, such as:
- The positive implications: The low trading volume may indicate that long-term investors are holding onto their bitcoin, rather than selling or trading them. This may suggest that they are confident and optimistic about the future of bitcoin, and that they are waiting for better opportunities to buy or sell. Moreover, the low trading volume may create a pent-up demand for bitcoin, which could lead to a surge in volume and price once the market conditions improve.
- The negative implications: The low trading volume may indicate that investors are losing interest and enthusiasm for bitcoin, and that they are looking for other assets or markets to invest in. This may suggest that they are doubtful and pessimistic about the future of bitcoin, and that they are waiting for more clarity and certainty from regulators and policymakers. Furthermore, the low trading volume may make bitcoin more susceptible to manipulation and volatility, as a small amount of buying or selling could have a large impact on the price.
The expectations for bitcoin trading volume depend on various factors, such as:
- The price of bitcoin: If the price of bitcoin breaks out of its current range and reaches new highs or lows, it could attract more buyers or sellers, and increase the trading volume.
- The market cycle: If the market enters a new bull or bear phase, it could generate more interest and activity, and boost the trading volume.
- The regulatory environment: If the regulatory environment becomes more favorable or unfavorable for crypto, it could influence the confidence and security of investors, and affect the trading volume.
- The innovation and competition: If the innovation and competition in the crypto space pick up again, it could offer more options and opportunities for investors, and enhance the trading volume.
One of the potential catalysts that could revive the bitcoin trading volume is the decision on any of the spot bitcoin ETF applications that are pending at the SEC. A spot bitcoin ETF would allow investors to buy and sell bitcoin through a regulated and transparent vehicle, without having to deal with the complexities and risks of holding or storing bitcoin directly. A spot bitcoin ETF could also increase the liquidity, accessibility, and legitimacy of bitcoin, and attract more institutional and retail investors to the market.
However, the SEC has been reluctant to approve any spot bitcoin ETF so far, citing concerns about market manipulation, investor protection, custody, valuation, liquidity, arbitrage, and surveillance. The SEC has delayed or rejected several spot bitcoin ETF proposals in the past , and has recently postponed its decision on four more applications until later this year . Therefore, it is uncertain whether the SEC will ever approve a spot bitcoin ETF, or when it will do so.