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What The Drop In Spot And Derivatives Volumes Means For The Price Of Bitcoin
It has been a quiet week of caution for Bitcoin traders in terms of price action. This caution has trickled into trading volume in particular, as volumes on major crypto exchanges for both spot Bitcoin trading and Bitcoin derivatives have fallen far below their levels at the beginning of the year.
On-chain data from CryptoQuant charts have shown the daily spot and derivatives trading volume of Bitcoin has been steadily declining since the first quarter of the year. The question is, what does this collapse in trading volumes mean for the future price of Bitcoin?
Decline In Trading Volumes
Trading volumes this year have declined significantly from their highs in March during the Silicon Valley Bank fiasco. Since this period, the derivatives or futures market has fallen 96% and the spot market has fallen 98%.
Bitcoin trading in particular, has been down by a significant margin the past week. Data from CoinMarketCap has shown Bitcoin spot trading volume has decreased by 33.67% in a 24-hour timeframe. Similarly, the spot exchange trade volume was shown by CryptoQuant data to be 9,627, down 81% from 50,692 at the beginning of the week.
The situation looks even more glaring when you consider falling derivatives volumes as well. On-chain data collected by CryptoQuant indicates that the derivatives trade volume is currently at 108,852. This represents a decrease of 88% from the volume of 950,331 at the beginning of the week.
The market cap of cryptocurrencies is currently at $1.03 trillion. Chart: TradingView.com
What Does This Mean For The Price Of Bitcoin?
When activity in these markets dwindles, it signals a lack of interest from institutional traders and retail investors. With interest seeming to wane, the next few weeks could determine Bitcoin’s near-term direction. As the largest cryptocurrency in the world, this could also determine the direction of the majority of the crypto market.
At the time of writing, Bitcoin is trading at $26,556. Without much trading activity to drive prices up, Bitcoin could continue trading sideways or even face downward pressure. The next major support for Bitcoin is at $25,000, and a fall below this price could indicate a prolonged bearish trend with increased selling pressure
Another way this could go is the lower price eventually leading to higher volumes again as investors see an opportunity to buy. According to a social media post by crypto analyst Captain Faibik, Bitcoin could reach as low as $23,000 in October before breaking out to reach $34,500 by early next year.
Similarly, Didar Bekbauov, founder and CEO of Bitcoin joint mining business Xive, stated that the price of Bitcoin could soar past the year-to-date (YTD) price of $31,700 while speaking to Bitcoinist.
(This site’s content should not be construed as investment advice. Investing involves risk. When you invest, your capital is subject to risk).
Featured image from iStock