- Cryptocurrency exchanges are the most battered alongside the recent fall in digital asset prices as trading volumes fall off as well
- Traders are sitting on the sidelines either way, with buying activity keeping the support of US$40,000 intact for now, but without any major catalyst to see a fresh uptick
Unlike the traditional financial markets, a sharp drop off in volume on cryptocurrency exchanges can mean that investors have suddenly turned to “hodling” instead of trading and while this may mean bad news for exchanges which make fees from trading activity, it could provide a silver lining for long-term cryptocurrency enthusiasts who believe that even more upside awaits.
Volatility in cryptocurrencies is nothing new, prices can move for apparently arbitrary reasons, as plentiful as the tokens that there are to take bets on.
But the recent sharp correction in cryptocurrency prices, thanks to an apparent hawkish turn by the U.S. Federal Reserve may have more investors looking to shy away from trading, and going back to one of the fundamental tenets of the sector – to “hodl” (or “hold”).
FTX.US has reported lower trading volumes “across the board” in the past week.
In an interview with Bloomberg, FTX.US President Brett Harrison noted,
“To me it looks like we’re in the period of just decreased volume and subdued trading activity following drops in general.”
“Usually you will see a lot of quick volume from people trying to sell off during a panic, but then a longer period of decreased volume as people shy away from the market after the volatility.”
The quiet seen across cryptocurrency exchanges right now is a factor of no new money coming in, but also, no old money going out.
In a typical crash scenario, investors would keep pouring into exchanges, eager to find an exit to cash out of the ecosystem altogether, but given that bitcoin refuses to give up the US$40,000 level of support (at the time of writing) appears to suggest that buyers exist at certain levels, while sellers have shifted their assets into cold wallets.
The cryptocurrency industry participants that will be hit the hardest by a sharp dropoff in volumes will ultimately be exchanges such as Coinbase Global (-0.71%), where trading fees make up the majority of its revenue.
Prices turning flat could also be a double whammy for exchanges – when prices turn flat, they’re not so low as to tempt in new buyers, but they’re not so high to entice hodlers to cash out either.