Analysis Crypto Opinion

Cryptocurrency Volume Drops To A Two-Month Low, Should You Be Worried?

Nick Chong | June 18, 2018 | 12:09 pm
Analysis

Cryptocurrency Volume Drops To A Two-Month Low, Should You Be Worried?

Nick Chong | June 18, 2018 | 12:09 pm

Cryptocurrency volumes have dipped to a two-month low, with levels resembling those seen earlier this year during April’s downtrend. But what does this mean for the market in general?

Is Volume An Viable Indicator?

As of June 18th, exchange volume has collectively dropped under $10 billion dollars, with these levels being seen in early April. 

The collective exchange volume is currently down over 80% since the large influx seen in early January, which topped out at a staggering $68 Billion in 24 hours. Tom Lee called this absurd amount of volume an “abnormal” figure, believing that January’s volume should be of no comparison to today’s volume.

Nevertheless, trading volume present with a specific asset, or asset-class, has long been held as a significant indicator of the market’s interest in an asset.

With some critics keeping this ideology in mind, they have suggested that investors are losing interest in the industry, and quick too. Despite these fears, cryptocurrency and blockchain development is still at all-time highs, with countless institutions piling on to the cryptocurrency bandwagon.

Just last month, IBM announced that they are planning to create a cryptocurrency in collaboration with a carbon-credit startup. Seeing such a large technological player get its feet dipped into the cryptocurrency market has produced some bullish sentiment, as some predict that this cryptocurrency will reach wide-spread adoption as a carbon-credit alternative. 

Additionally, regulatory fears have slowed as governmental bodies have eased their previously relentless pressure on the industry. Although these announcements have not caused the expected surge in exchange volume, some expect that volume has moved to the more secretive OTC exchanges. 

Has Volume Moved To OTC Exchanges?

Over-the-counter trading has become a reoccurring practice for larger institutions, which is a statistic CoinMarketCap does not register.

This may be due to the fact that most exchanges, whether large or small, do not have enough liquidity to support hundreds of millions of dollars worth of trades.

OTC trading often utilizes so-called ‘darkpools’, that allows for private investors to exchange copious sums of fiat for cryptocurrencies, with no fears of order book manipulation. These darkpool services have long been inaccessible for the ‘average joe’, as most people do not have access to millions in funds.

Some speculate that OTC volume numbers in the billions, making the volume of traditional exchanges look minuscule.

As well, there may be some other factors that may have caused this large decline in trading volume.

Users may just be ‘HODLing’ their cryptocurrencies, expecting an eventual run-up in prices. Tom Lee and Robert Sluymer hold this sentiment as well, with the Fundstrat duo expecting Bitcoin to reach over $25,000 by the end of the year.

This specific variant of bullish sentiment has become common with cryptocurrency influencers. With Xapo’s president also expecting Bitcoin’s value to rise over time, reaching a valuation of hundreds of thousands of dollars in a few years time, giving no regard to daily volatility.  

Volume should not be fully attributed to price action, as there may be some users not willing to trade their currencies in a market like this.

It became clear that a majority of the volume seen in late December/early January was the result of short-term speculators trying to turn a profit. However, the market in its current state has become almost impossible to predict in short time frames, further deterring speculators. Why trade when your chance of a loss outweighs the profit potential?

The declining volume should not have investors worried, as the fundamentals are still strong for the industry, with cryptocurrency development showing no signs of slowing. As many in the industry like to say, “build it and they will come.”

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