Crypto Market Volumes Collapse in January
Posted by Colin Lambert. Last updated: February 7, 2022
With investors piling into crypto market structure ventures, prompting increasingly higher valuations of many firms, one core metric of a healthy market environment, volumes, suggest that all is not as rosy in the crypto garden as it might be.
In its monthly analysis of crypto exchange volume, The Block Crypto says that total volumes in January were just over $827 billion, down from December’s $1.04 trillion as well the previous January’s $922.9 billion, and down two-thirds from the peak recorded in May 2021 of $2.23 trillion.
This trend has been supported by the latest monthly metrics from LMAX Digital, which reports volumes of $22.7 billion in January, down 18% from December and down some 63% year-on-year. The January data represents the quietest month for LMAX Digital since November 2020, when it handled $17.8 billion.
On a year-on-year basis, Bitcoin volumes fell by three-quarters from $44.9 billion in January 2021 to $11.7 billion last month, while in Ether dropped 20% over the same time to $8.1 billion and activity on other coins fell by 50% to $2.9 billion.
It is probably no surprise that the drop in activity coincided with a poor month, in terms of price performance by cryptocurrencies – with less than a quarter of funds reporting, early indications from the BarclayHedge Cryptocurrency Traders Index are that the negative returns for January will be in excess of 20%.
Additionally, market observers say that volume is often sustained by new buyers of crypto assets, with existing longs, or HODlers as they are often known, preferring to stay out of the market during price dips.
If the latter is the case, then the bounce back to above $42,000 by Bitcoin early in February should help activity recover, but it should be noted that price action in January was fairly low key, with just the $4-5,000 drop in the value of Bitcoin on January 20 registering as a significant move.
Both service providers and investors in the infrastructure will be hoping that price volatility returns, is sustained, and helps create brokerage. If it doesn’t, then some of the stratospheric valuations seen in recent weeks and months may start to look over-stretched.