As the month of June unfolds, investors who engage in crypto trading will grapple with three major hurdles. Indeed, these obstacles could send ripples across the crypto market.
These issues include a concerning dip in trading volume, alarming liquidity issues, and a substantial increase in selling pressure.
Trading Volume Plummets
The trading momentum and expectations were high in the crypto market’s first quarter this year. However, a disturbing decline in trading volume across all major centralized exchanges has been observed since.
May’s aggregated daily trading volumes have shrunken from an impressive $23 billion to a paltry $9 billion. This downtrend signals a diminishing speculative interest and a growing apathy toward the crypto market.
“Daily crypto trading volume is now the lowest that it has been since 2020. Market in aggregate is in a period of apathy and capitulation through time – lack of speculative interest from the masses sparks opportunity for those with a strong belief,” said analyst Will Clemente.
Regarding the breakdown of overall trading volume by exchange, Binance has experienced a slump. Its market share has plunged to 56%, a stark 15% drop from its peak in the second half of 2022.
Contrarily, this decline has favored exchanges in the other categories, which comprises platforms such as Huobi, Kraken, and Kucoin.
With the regulatory landscape in the United States remaining uncertain, offshore exchanges maintain their dominance in the crypto trading ecosystem. They make up a staggering 86% of the entire trading volume. This trend is predicted to intensify.
Surprisingly, even Coinbase, traditionally recognized as a compliant alternative to other crypto venues, announced the introduction of its own offshore derivatives venue, the Coinbase International Exchange.
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Crypto Liquidity Crisis
The second major issue casting a shadow over the crypto market is a liquidity crisis. This is especially significant for Bitcoin and Ethereum.
Despite the USD-denominated market depth remaining somewhat stable. Liquidity has been flat as measured by coin-denominated 2% market depth, meaning the depth of bids and asks within 2% of the current trading price. This reflects an increasing indifference toward the crypto market.
The ongoing liquidity decline has elicited statements from Jane Street and Jump Crypto, two market makers, revealing plans to scale back their crypto operations in the US due to regulatory uncertainties. Jane Street went further, announcing a global scale-back of its crypto operations.
The implications of reduced liquidity in the crypto market are significant. Liquidity is a critical aspect of any financial market, including crypto. It refers to the ease with which assets can be bought or sold in the market without affecting the asset’s price.
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High liquidity levels create a more secure and efficient market. Therefore, allowing participants to enter easily and exit trades leads to tighter spreads.
In contrast, low liquidity can hinder the ability of market participants to execute larger trades without incurring price impact, also known as slippage.
In practical terms, if a trader wants to sell a significant quantity of crypto and there are not enough buyers, the price may have to be reduced to make it appealing. This process could create a downward price spiral, leading to lower prices and possibly triggering a sell-off.
Surging Selling Pressure
The third problem presented in June 2023 is the surge in selling pressure as Bitcoin dropped below $27,000.
While the crypto community keeps a watchful eye on crucial price levels, concerns around liquidity have been amplified in the wake of legislative actions in the US.
Antoni Trenchev, managing partner of crypto lender Nexo, raised an interesting point.
“Bitcoin faces a number of potential banana skins in June now the debt ceiling drama looks to have passed. Once the Senate likely backs the debt-limit legislation, the market faces a flood of treasury bill issuance, which will likely draw liquidity away from risk assets like Bitcoin,” said Trenchev.
The US House of Representatives recently approved a deal to suspend the $31.5 trillion debt ceiling. This could result in the issuance of up to $1 trillion in US Treasury bills, posing additional pressure on Bitcoin.
“For Bitcoin, it’s quite simple: Stay above the 200-week moving average around $26,300, and the bullish uptrend from the November low of $15,500 is intact. On the upside, get above $31,000, and things might start to get really interesting,” remarked Nexo’s Trenchev.
Still, Maartunn, Community Manager at CryptoQuant, believes that despite the recent spike in selling pressure similar to previous sell-offs, it may peak soon and revert.
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