Bitcoin Spot Trading Volume Hits Lowest Level in 2021, Signaling Market Pessimism
You may have noticed that the trading volume of Bitcoin on centralized crypto exchanges has dropped significantly in August. According to a recent report by Bitfinex, this decline in spot trading volume is a cause for concern. The report highlights that August’s monthly trading volume was the lowest since October 2020, indicating a lack of confidence in the broader crypto asset sector.
The report also notes that the market is experiencing extremely low liquidity, which makes it vulnerable to significant price fluctuations. Even with modest trading volume, the crypto-market remains susceptible to large swings.
Derivatives Volume Surpasses Spot Volume, Driving Market Activity
In mid-August, there was a surge in trading volume on derivatives exchanges, coinciding with the liquidation of over $1 billion worth of leveraged positions. Bitfinex suggests that derivatives have been the driving force behind the current market environment. In fact, the report states that derivatives volume is currently 20 times higher than spot volume across major exchanges.
Market Pessimism Grows as ETF Rollout Faces Delays
The report from Bitfinex analysts also points to a growing wave of market pessimism. Despite a brief moment of optimism following Grayscale’s legal win against the SEC, Bitcoin has since retraced its gains. Furthermore, the SEC’s decision to extend the deadline on seven ETF filings by 45 days has further dampened investor enthusiasm.
The report suggests that it may take longer than anticipated to see a bullish catalyst for the market. Bitfinex analysts believe that ETFs will have a less pronounced effect on actual market prices across crypto assets.
Trading Volume Declines, Lack of Confidence in Market Structure
Both spot and derivatives trading volume have seen a significant drop since March of this year. CryptoQuant data shows that spot exchange volume has fallen by 98%, and derivatives volume has fallen by 87% during this period. Additionally, trading volume for digital asset investment products has declined by 16% compared to the yearly average.
Considering the lack of trading activity, industry experts express concerns about the market structure. Blackfridge Exchange CEO Mike Crosbie believes that as long as Bitcoin remains below the $28,000 level, it is likely to decline further to around $23,800.
Hot Take: Bitcoin Faces Challenges as Trading Volume Shrinks
The current decline in Bitcoin’s trading volume suggests a lack of confidence in the market. With spot trading volume reaching its lowest level in 2021 and derivatives volume dominating the market, investors are growing increasingly pessimistic. Delays in the rollout of ETFs and a shrinking market structure further contribute to the negative sentiment. While macroeconomic data from the U.S. offers a glimmer of hope, it may take longer than expected to see a bullish turnaround. As Bitcoin hovers around $25,701, the future remains uncertain for the world’s largest cryptocurrency.
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