Subdued Volumes Are Limiting Activity in Cryptocurrency Market
Cryptocurrencies drifted sideways on Thursday, as trading activity remained subdued amid debates over regulation, scalability and institutional adoption of digital assets.
Cryptocurrency values were little changed on Thursday compared with 24 hours ago, with major assets treading water. The total value of all cryptocurrencies in circulation hovered above $345 billion, down from an earlier high near $350 billion.
Bitcoin prices traded slightly above $7,700 after hitting a session low of $7,616.92. The cryptocurrency is up slightly compared to the previous seven days.
Ethereum also steadied above $608, having rebounded more than 10% over the past week.
Bitcoin cash is the best week-on-week performer, having rebounded nearly 14% to $1,145. However, it was little changed compared with 24 hours ago.
Trading Volumes Subdued
Although the cryptocurrency market has reversed some of its losses in recent weeks, there has been a notable decline in transaction volumes. Trading volumes fell to six-week lows at the end of May and have only recovered slightly over the past ten days.
Since peaking at around $40 billion, daily transaction volumes have plunged more than 60%. As of Thursday, market turnover averaged just $15 billion over a 24-hour period, according to data provider CoinMarketCap.
Restrictions by financial institutions on the use of credit cards to buy digital currencies have been partly responsible for the decline in volume. (The author ran into this problem last month when, suddenly, his bank stopped allowing cryptocurrency purchases via credit cards on grounds that virtual exchanges are “gambling” websites.)
Some analysts have also speculated that the crypto whales have played a role in keeping traders on the sidelines. Tokyo’s Mt. Gox trustee has offloaded some 40,000 units of bitcoin since March, which has contributed to the decline in prices. Although the direct impact on prices was limited, speculation over when the next fire sale could occur has influenced market sentiment.
That said, trading volume is an imperfect guide on how well the overall market is performing. According to recent studies, the volumes of smaller cryptocurrencies and some notable exchanges are inflated.
Cryptocurrency trader Sylvain Ribes studied trading volume using a method called “slippage,” which enables the testing of specific trading pairs as well as order books. The method tests liquidity by selling $50,000 worth of each digital currency across multiple exchange.
Ribes concluded that more than $3 billion in claimed trading volume was fabricated. He claimed that Okcoin was the worst offender with up to 93% of its order books being nonexistent.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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