Crypto volumes have dropped significantly over the past year, with the dramatic decline being more pronounced than in other asset classes. The seven-day moving average of Bitcoin transfer volume is currently at its lowest level since August 2020.
The decrease in volume can be attributed to the summer slump, which is a common lull at this time of year. However, the low activity is in line with the rest of the year, as the market was impacted by the FTX collapse in November.
When looking at dollar volume, the extreme volatility of BTC/USD prices over the years should be taken into account. Comparing BTC activity is even more dramatic, with the seven-day moving average being at its lowest since 2014.
The drop in liquidity is not limited to Bitcoin. Crypto exchanges have seen their volume decrease significantly in the last two years. In March 2009, the trading volume was $984 billion, dropping by 58% to $413 billion in a single month. The chart shows a rapid increase in 2021 followed by a steady and prolonged decline to today.
The shift in monetary policy is reflected in the new figures. The Federal Reserve first hiked rates in March 2022, and since the increase was so rapid, investors dumped risk assets. Prices remain below their 2021 peaks, even though inflation has decreased and optimism about the tightening cycle is increasing. Volumes, liquidity and activity levels in the sector are also on the rise.
Max Coupland, Director of CoinJournal, states, “The pace of interest rate rises from the Federal Reserve has been relentless. This impacted risk assets across the financial landscape last year, and of course crypto prices are an obvious reminder of this. But while prices have begun to bounce back in 2023, volumes and liquidity in the industry are still trending down, to the point we are now at levels last seen in 2020.”
The collapse of FTX in November left a huge hole in the order books. Market makers Jane Street and Alameda Research also announced a scale back last month, as US lawmakers put pressure on the industry. The SEC has also sued Binance and Coinbase.
A positive point is that the liquidity of derivatives hasn’t dropped as drastically. Data from The Block shows that the spot-to-futures ratio has dropped sharply since 2023, having risen during the second half of 2022.
Overall, the volume and liquidity of the market are decreasing. Despite the fact that prices have started to climb again, the market remains far below the mania that characterized the bull run of 2021. Regulations have tightened and people are venturing outside again. There is also the reputational damage suffered by the space, and it is reasonable to speculate that some users have grown tired of all the issues.
It is important to note that, due to the summer break, there may be an increase in volume after the summer. Nevertheless, the outflow of capital has been immense and there is a long way to go before crypto returns to its former glory.
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