Bitcoin exchange volume hits 5-year lows due to Fed’s influence, encouraging BTC hodling.

Bitcoin exchange volume hits 5-year lows due to Fed's influence, encouraging BTC hodling.

The Declining Trading Volume in the Blockchain Industry amidst Economic Uncertainty

Bitcoin: Trading Volume (Spot vs. Derivative) chart. Source: CryptoQuant

Bitcoin (BTC) trading volume has been experiencing a significant decline in recent months, with volumes at lows rarely seen since 2018. According to research from CryptoQuant, daily BTC volumes have plummeted, reflecting a loss of interest from traders in light of constant macroeconomic uncertainty. This decline in trading activity can be attributed to various factors, including the current economic policy and the growing fear of a possible recession.

The flitting actions of the United States Central Bank, particularly with regard to interest rate hikes and pauses, have created a constant feeling of uncertainty. The Federal Reserve’s decision-making has left investors waiting for a potential recession, which has contributed to the decline in Bitcoin trading volumes. The diminishing trading volumes can be seen in CryptoQuant’s data, which tracks activity on both spot and derivatives exchanges. In the past week alone, the daily spot exchange transactions ranged between 8,000 and 15,000. This is in stark contrast to the daily tally observed in March, which exceeded 600,000 transactions.

The hesitation of traders in the face of economic uncertainty has led to a shift in the mindset of Bitcoin investors. Rather than seeking quick profits through short-term trading, more and more individuals are viewing Bitcoin and other cryptocurrencies as long-term investments. They choose to hold onto their Bitcoin capital, believing in the future value of their coins instead of selling at the first sign of profit. This shift in investor behavior has further contributed to the decline in trading volume.

Bitcoin UTXO age bands annotated chart (screenshot). Source: CryptoQuant

Another aspect influencing the decline in Bitcoin trading volume is the current state of Bitcoin speculators. Short-term holders, those who have held BTC for 155 days or less, are now holding almost all of their funds with an unrealized loss. The cost basis for these holders is higher than the current spot price of Bitcoin, making it difficult for them to make a profit. The cost basis of these short-term holders, combined with the behavior of Bitcoin newcomers, is acting as strong resistance to Bitcoin price growth.

Bitcoin newcomers, especially those who entered the market over the past year, tend to have a stronger tendency to buy and sell in the short term. CryptoQuant contributor Yonsei_dent highlights the stronger resistance created by the cost basis of these Bitcoin newcomers. This resistance is visualized through the unspent transaction output (UTXO) numbers split by age band. The chart shows how these age bands form resistance and support levels in Bitcoin trading.

In addition to the decline in trading volume, external interest in Bitcoin exposure remains notably absent. Google Trends data shows the lowest interest in “Bitcoin” as a search term since October 2020. This lack of external interest further contributes to the overall decline in Bitcoin trading activity.

Overall, the decline in Bitcoin trading volume can be attributed to various factors, including economic uncertainty, the shift in investor behavior towards long-term investment strategies, and the resistance created by the cost basis of short-term holders and Bitcoin newcomers. As the blockchain industry continues to navigate through these challenging times, it is important for traders and investors to stay informed and adapt their strategies accordingly.