Plunge in crypto market volumes bleeds into September

The weekly trading volume moving average for centralized exchanges is at its lowest level since 2020, according to a Fineqia International analyst


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Persistent low crypto market volumes in September have reached levels unseen in several years, leading to a price drop for crypto’s top two assets by market capitalization early Monday.

While analysts told Blockworks that lower interest rates and the approval of spot crypto ETFs in the US could reignite trading volumes, the trading environment might remain subdued for the foreseeable future.

Average daily volumes on centralized exchanges were $8.4 billion in August — a decrease of 16% from the prior month, and down 78% year over year, according to a Sept. 8 note from analysts at Compass Point Research and Trading. 

Such volumes were “abysmal” in the first week of September — at roughly $5.9 billion, the analysts added. These were down another 29% month over month, and are tracking at levels not seen since late 2017, they wrote.

The average daily volume for decentralized exchanges — hitting just above $1.8 billion — held up better than centralized counterparts in August, but still dropped about 8.5% from July. 

In a Monday research note, Matteo Greco, a research analyst at Fineqia International, highlighted that the recent weekly trading volumes on centralized exchanges, averaging around $9 billion, are the lowest since the end of 2020.

This metric represents a moving average of weekly trading volumes, calculated for the period from Sept. 4 to Sept. 10, Greco told Blockworks.  

The main decentralized exchanges totaled $22 billion of volumes in August, the lowest monthly volume since December 2020, the Fineqia analyst added.

On top of that, about 75% of bitcoin’s (BTC) total supply is held by long-term holders — reflecting BTC not moved for more than 155 days, according to Fineqia. Only 2.5 million BTC are held by short-term holders, the lowest since 2011, Greco noted.

Read more: Bitcoin ‘hodlers’ unfazed by recent market volatility

Trading volumes on crypto exchange-traded products also dropped to $754 million last week (from Sept. 4 to 8), plummeting 73% from the prior week, CoinShares Research Head James Butterfill said Monday.

The substantial drop last week came after higher-than-usual trading volumes after Grayscale Investments won a case against the US Securities and Exchange Commission in the DC Circuit Court of Appeals.

Still, the $754 million in crypto ETP trading volume was well below the average weekly volumes so far in 2023 of $1.4 billion. 

The prices of bitcoin and ether (ETH) were down 2.1% and 3% from 24 hours ago, as of 2 pm ET Monday, according to CoinGecko data. 

What’s the cause, and how could it recover?

Greco said Monday that interest rate hikes by central banks in the last 18 months have strongly contributed to lower levels of liquidity in the financial markets, suggesting a de-risk movement for investors. 

“This impacted the whole financial sector, with a stronger effect on the digital asset market, being historically the most volatile and risky,” he added.

Chase White, senior research and policy analyst at Compass Point, told Blockworks that high short-term Treasury rates are especially impacting the appetite for crypto and other risk assets.

“You can earn 5.5% risk-free, which is appealing to investors given the uncertainty around the global macroeconomic outlook at this point,” he explained. “Outside of the macro picture, the lack of fiat on-ramps for crypto platforms seems to have impacted liquidity, as US banks have really pulled back from providing services for the crypto industry outside of some of the biggest domestic players.”

Greco said in his Monday note that investors are showing increasing confidence for spot bitcoin ETF approval. He pointed to the discount of the Grayscale Bitcoin Trust (GBTC) — at about 17% on Friday — hitting its lowest level since the beginning of 2022. 

A bunch of firms — including finance giant BlackRock — have filed for spot bitcoin ETFs, a type of product that SEC has never permitted to come to market. Ark Invest, 21Shares and VanEck, in addition to seeking to launch bitcoin ETFs, have more recently revealed plans to launch spot ether ETFs

“The end of rate hikes, especially if combined with approval of a spot bitcoin ETF, could represent a major driver to bring new capital into the market and improve liquidity,” Greco added. 

White labeled “visibility into lower interest rates and a return to economic growth” as the biggest driver that could bring crypto volumes back. He expects this to start coming in early 2024.

“However, any movement on SEC approvals of spot [bitcoin or ether] ETFs could provide an uplift that decouples crypto markets from the broader macro picture to the extent approvals happen before the turn in market sentiment,” White told Blockworks. 

White and others have said they believe spot bitcoin ETFs could be approved either at the end of the year, or in early 2024. 

“Outside of that, it seems like we’re in for a relatively quiet trading environment over the next few months,” White said.

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