Bitrabo Editorial
As regulators around the world and in the US increase their enforcement efforts, trading volumes on major centralized crypto exchanges (CEXs) continue to decrease. Data from CCData revealed that combined spot and derivatives trading volumes on platforms like Binance and OKX decreased by 15.7% month-on-month to $2.41tn in May. This reduction follows a second consecutive month of declining trading volumes, despite cryptocurrencies’ stable price movements with low volatility.
Drop in Trading Volumes
Spot trading volumes took a significant hit and declined by 21.8%, falling to $495bn in May. It was the lowest trading volume for spot trading since March 2019. Meanwhile, derivatives trading plunged 15.7% to $1.95tn in May, which was also the lowest it had been in six months.
Binance, the world’s largest crypto exchange, further experienced a reduction in market share in May, falling to 43%. This decrease in market share might be due to the exchange’s announcement of ceasing zero-fee spot trading for USDT pairs. Nevertheless, Binance’s current dominance remains strong and more active in comparison to competitors like Kraken, Bitfinex, and Coinbase.
Market weakness and increased scrutiny from regulators, particularly in the US, might also have contributed to the downturn in Binance’s market share and trading volumes, according to CCData. The market has been weak, and Bitcoin’s price was struggling to break through $31,000, which it had attained in April, and has since continued to fall to $25,800 in May and below $30,000 lately.
Crypto Sentiment Worsening?
When presented with a rapidly declining trading volume, we should infer a potential turn in demand, suggesting that prospective buyers could be apprehensive due to current market conditions. Spot trading reflects the genuine demand for a particular cryptocurrency asset in the cryptocurrency market. Conversely, when trading volumes fall rapidly, it indicates that traders feel cautious and that their sentiment towards crypto is deteriorating. This general sentiment affects the overall trading activity and liquidity in the market.
The decrease in spot trading was more pronounced than the reduction in the number of crypto derivatives contracts placed. Traders engage in market speculation through derivative crypto trading and aim to benefit from the volatility of crypto assets. Trading platforms such as Binance, OKX, and Bybit allow traders to trade various crypto derivatives and hold positions using leverage. In May, derivatives trading slowed down, but it was slower than the contraction in spot trading. This suggests that some traders continue to put up trades using derivative crypto trading, capitalising on volatile crypto prices.
However, with the United States Securities and Exchange Commission (SEC) suing Binance and Coinbase, alleging that they offer unregistered securities, trading volumes could drop even further in June 2023, potentially impacting liquidity.
Feature Image From Canva, Chart From TradingView