The crypto market, on top of everything else, has another problem on its hands: trading activity is in the gutter.
In 2022, trading volume on centralized exchanges such as Coinbase, Kraken and Binance plunged more than 46%, according to data compiled by CryptoCompare. On Binance, which remains the leader in terms of market share, spot trading fell 45% to $5.4 trillion. And Bitcoin, the most-traded digital asset, saw trading volumes decline 31% year-on-year, the researcher said in a report.
Meanwhile, a “Liquid Tradeable BTC” proxy tracked by Arcane Research has slid to June 2020 lows, and exchange balances have fallen to 12% thanks to a rise in self-custody, the company said in a report compiled by Bendik Schei and Vetle Lunde. This, they say, has direct implications for Bitcoin liquidity because fewer coins available to trade can mean more volatility.
“We are seeing some pretty spectacular declines in spot activity,” said Strahinja Savic, head of data and analytics at FRNT Financial.
In a holiday-shortened week to start the year, Bitcoin remained in the narrow range of either side of $17,000 that it has mostly lingered in since the end of November.
Cryptocurrencies slumped last year amid a number of big implosions for important projects such as the Terra stablecoin ecosystem and the FTX empire. Bitcoin tumbled 64%, its second-worst annual performance during its 14-year history. The plunge in token prices has scared away many retail investors who had flooded into the market during the early pandemic years, when lockdowns were still in force. Plus many institutional investors have been alarmed by the scandals that have left the industry reeling and likely looking at a long time to recovery.
The lack of trading volumes are another indicator that institutions have abandoned the asset class for now — and it could take a while before they once again regain confidence in the market, according to Matt Maley, chief market strategist at Miller Tabak + Co.
“This is especially true in a bear market,” he said. “Their customers are much less forgiving when they see big losses in a risky asset class during a general bear market for risk assets.”
The money managers who avoided the many ups and downs of crypto may be feeling relieved for having done so, according Jared Gross, head of institutional portfolio strategy at JPMorgan Asset Management. “As an asset class, crypto is effectively nonexistent for most large institutional investors,” he said on a recent episode of the “What Goes Up” podcast.
The crypto industry is still wobbling following the fallout of the FTX empire, and market-watchers are wary of more adverse developments around other major participants. Broker Genesis laid off roughly 30% of its workforce in recent days, another signal of how much the industry is being shaken by recent events.
Digital-asset entrepreneur Justin Sun transferred about $100 million worth of stablecoins on Friday to his crypto exchange Huobi Global, which has been hit by a wave of withdrawals. The transactions came amid elevated pressure on Singapore-based Huobi, which saw about $85 million of crypto outflows over a 24-hour period according to data from Coinglass. The exchange said on Friday that it plans to fire about 20% of its workforce and will maintain a “very lean team” as a slump in crypto markets enters its second year.
While exchanges such as Huobi are mostly retail driven, institutional interest is more relevant for trading activity, especially in the early part of the next upswing, says Noelle Acheson, author of the “Crypto is macro now” newsletter. “They generally account for the bulk of trading and have different risk profiles,” she said. “Retail tends to come in with size later in the cycle, nearer the top.”
Acheson added that there are some “brave and high-conviction” retail investors entering the market right now, “but we are a ways off from seeing a ‘wave.’”