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"In September, cryptocurrency market trading volumes have continued to decline, reaching levels not seen in years, leading to price drops in the two largest cryptocurrencies by market capitalization earlier this week.
Despite analysts suggesting that lower interest rates and the approval of U.S. physically-backed cryptocurrency ETFs could reignite trading volumes, the trading environment may remain subdued in the foreseeable future.
According to a report by Compass Point Research and Trading on September 8th, the average daily trading volume on centralized exchanges in August was $8.4 billion, down 16% month-over-month and 78% year-over-year.
Analysts added that trading volumes in the first week of September were ""abysmal,"" around $5.9 billion. They wrote that these figures represented a 29% drop compared to the previous month and marked the lowest levels since the end of 2017.
The average daily trading volume on decentralized exchanges in August was slightly over $1.8 billion, performing better than centralized exchanges but still down by approximately 8.5% compared to July.
Matteo Greco, a research analyst at Fineqia International, emphasized in a research report on Monday that the recent weekly average trading volume on centralized exchanges has been about $9 billion, the lowest since the end of 2020. Greco stated that this metric represents the moving average of weekly trading volumes calculated from September 4th to 10th.
Fineqia analysts also noted that the total trading volume on major decentralized exchanges in August was $22 billion, the lowest monthly trading volume since December 2020.
Most importantly, according to Fineqia, approximately 75% of Bitcoin's total supply is held by long-term holders, reflecting that over 155 days have passed without movement. Greco pointed out that short-term holders possess only 2.5 million BTC, the lowest level since 2011.
James Butterfill, Research Director at CoinShares, stated on Monday that the trading volume of cryptocurrency exchange-traded products (ETPs) plummeted to $754 million last week (September 4th to 8th), a 73% drop from the previous week.
Despite this, the $754 million trading volume for cryptocurrency ETPs is still significantly lower than the average weekly trading volume of $1.4 billion recorded so far in 2023.
As of Monday afternoon (U.S. Eastern Time), according to CoinGecko data, Bitcoin and Ethereum prices have dropped by 2.1% and 3%, respectively, compared to 24 hours ago.
What Caused the Drop, and How Can Recovery Be Achieved?
Greco stated on Monday that central banks' rate hikes over the past 18 months have significantly contributed to the decline in liquidity levels in financial markets, indicating that investors are taking risk-off actions.
He added, ""This has affected the entire financial sector, with a greater impact on the digital asset market, which is historically the most unstable and risky market.""
Chase White, Senior Research and Policy Analyst at Compass Point, noted that higher short-term government bond rates have especially affected interest in cryptocurrencies and other risk assets.
""You can get a risk-free return of 5.5%, which is quite appealing to investors given the current uncertainty in the global macroeconomic outlook,"" he explained. ""Outside of the macro situation, the lack of a fiat onramp for crypto platforms appears to be impacting liquidity as well since U.S. banks are indeed no longer providing services to some of the largest domestic players outside of the crypto industry.""
Greco, in his Monday report, emphasized increasing investor confidence in physically-backed Bitcoin ETFs. He pointed out that the Grayscale Bitcoin Trust (GBTC) discount rate, about 17% on Friday, touched the lowest level since the beginning of 2022.
Several companies, including financial giants like BlackRock, have applied for physically-backed Bitcoin ETFs, a product that the SEC has never allowed to be listed. In addition to seeking to launch Bitcoin ETFs, Ark Invest, 21Shares, and VanEck have recently revealed plans to introduce physically-backed Ethereum ETFs.
Greco added, ""The end of the rate hike, especially if combined with the approval of physically-backed Bitcoin ETFs, could be a major driver to attract new capital into the market and improve liquidity.""
White identified ""lowering rates and visibility of economic growth recovery"" as the biggest drivers that could lead to a cryptocurrency rebound. He expects this to begin in early 2024.
""However, any changes in SEC approvals for spot (Bitcoin or Ethereum) ETFs could also provide a boost, decoupling the cryptocurrency market from the broader macro situation,"" White said.
White and others believe that physically-backed Bitcoin ETFs could be approved by the end of this year or in early 2024.
""Beyond that, it seems we will face a relatively quiet trading environment in the coming months,"" White concluded." |
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Post time 15-9-2023 11:06:01