Crypto 101: Reading Exchange Volumes

Trading volumes are at a three-year low, something that always heralds a big move, one way or another.

Low trading volumes are not a sign that crypto is dead.

The markets are in a period of unusual calm. In fact, overall exchange volumes—the total amount of crypto traded across all platforms—has dropped to lows not seen since 2020.

How do we understand this apparent lack of interest? Is crypto dead? Will traders ever return to the markets? And when they do, will it be as buyers or sellers?

Using The Past As A Guide

As it happens, this kind of drop-off in volume is nothing new. It's happened multiple times before. It's simply characteristic of a certain phase of the market. In each case, it has ended in a big move—up or down.

News and analytics site is helpful for providing some context, in the form of a chart that stretches right back into six years of crypto history.

Comparing this chart to the markets, we can see that volume peaks have historically coincided with price peaks. This makes perfect sense: At the top of a bull market, new people and new money are piling into the space. Then, as the market peaks, there's intense selling. That has been the case in December 2017, in May 2021, and then again in October/November 2021.

The two 2021 peaks are interesting, because while BTC's price pushed higher, volumes did not. There was "divergence": Traders were actually leaving the market, even as BTC put in a new all-time high. Momentum was fading, and indeed we had the proof of that soon after.

This video by analyst Michael Pizzino is worth a watch if you want to unpack the significance of volume trends in more detail.

What Do Volume Lows Mean?

12-month lows in volumes, or "dead zones", also mark something significant. These are periods when no one new is coming into the market. Interest, let alone hype, has long since faded.

These periods are generally times of distribution or accumulation, and more likely accumulation. They tend to culminate in an explosive move. October 2018 was the only distribution phase, less than 12 months into the bear market, ahead of a 50% crash that would put in the cycle low.

Once again, the markets are currently experiencing historically low volumes. That is highly likely to lead to a significant move once again. At this point in the cycle, it's more likely to be upwards, though there are of course no guarantees—and a shakeout before a rise is also entirely possible.

What it does not mean is that crypto is dead. Volatility will return, perhaps within weeks, perhaps by the start of 2024. We know from past experience that it's only a matter of time.

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