Crypto market participation continues to dip

Key Takeaways

• Trading volume, liquidity and volatility are all falling in the crypto markets
• Even Bitcoin’s strong rise thus far this year has been steady and methodical rather than via sudden spikes, as in the past
• Bitcoin dominance is rising, uncharacteristic during periods of price increases, highlighting a potential divergence 
• Regulatory crackdown is suppressing market participation through lawsuits against exchanges and heightened legal uncertainty 
• Volatility should return eventually, but previous six months have been the most placid in recent memory

It’s all quiet on the blockchain front. 

The crypto markets continue to plod along with volume, liquidity and volatility all extraordinarily low. All across the board, the numbers point to market participation lowering incessantly. 

Even Bitcoin’s rise year-to-date, which is impressive thus far at 76%, has come through steady, methodical gains. This contrasts sharply with previous bull markets, which have seen the asset spike higher in very short time periods. Then again, the market seems unsure of whether this is a bull market, a bear market, or something in between.

The slow but steady incline this year has come amid a further fall in trading volume. Last year, volumes on centralised exchanges fell 46%. This came amid a vicious bear market, highlighted by several scandals, such as the FTX collapse, Terra’s death spiral and numerous bankruptcies. 

The year 2023 has seen the trading slump continue lower, without even the dramatic episodes of volatility such as those aforementioned scandals. The Block’s data for July has trading volumes now at levels last seen in 2020: 

As we analysed here recently, this is partially a result of a typical summer trading lull, something which affects asset classes beyond crypto, too. The next chart from Kaiko shows this, with Q3 frequently yielding the lowest volume in Bitcoin’s short history. However, it is prudent to note that this is heavily skewed towards the last couple of years, with Bitcoin surging into mainstream consciousness and its liquidity therefore rocketing. Hence, blaming this lull on seasonality alone feels misguided.

Bitcoin dominance is rising 

Looking beyond Bitcoin, altcoins have also been quiet. There have been stories of the odd meme coin (Bald and Pepe, to name a couple) that have gained attention,…