Regulators Put the Squeeze on Crypto Trading, Volumes Plummet

Trading volumes across major centralized cryptocurrency exchanges (CEXes) continued to contract throughout May as regulators cracked the whip in the U.S. and worldwide. In a report compiled by CCData, records show that the combined spot and derivatives trading volumes across platforms like Binance and OKX fell 15.7% to $2.41 trillion.

It represented the second month of trading volumes dropping when crypto asset prices mostly moved sideways and general volatility at early 2023 levels.

Trading Volumes Drop Double Digits in May

A notable development is that spot trading volumes dropped by 21.8% in May to $495 billion.

At this rate, trading volumes fell to levels last seen in March 2019. Meanwhile, derivatives crypto trading volumes crashed to a six-month low when they contracted 15.7% to $1.95 trillion in May.

The market share of Binance, the world’s largest crypto exchange by trading volumes, also fell to 43% in May. This development follows the announcement by the exchange that they were halting zero-fee spot trading for USDT pairs.

Still, at this level, Binance remains dominant and relatively more active than competitors like Coinbase, Kraken, and Bitfinex.

CCData notes that the general drop in Binance’s market share and trading volumes could also be attributed to general market weakness and increased scrutiny from regulators, especially in the United States. 

Market weakness was visible in May as Bitcoin prices failed to break above $31,000 registered in April. Instead, Bitcoin continued to track lower, dropping to as low as $25,800 at some point in May. Prices are currently struggling below $30,000.

With the United States Securities and Exchange Commission (SEC) suing Binance and Coinbase, claiming that they offer unregistered securities, trading volumes could continue dropping in June 2023, possibly impacting liquidity.

Crypto Sentiment Deteriorating? 

Spot trading indicates the natural demand for a particular crypto asset in the cryptocurrency market. Spot buyers typically do not participate in margin trading activities that may be available on the same platform.

When trading volumes decline rapidly, it suggests a potential shift in demand, indicating that interested buyers may be hesitant due to the current market conditions.

Falling trading volumes, therefore, reflect a cautious sentiment among traders. Subsequently, this can affect the overall trading activity and, thus, liquidity in the market.

On the other hand, derivative crypto traders engage in market speculation, aiming to profit from crypto asset volatility. Cryptocurrency platforms like Bybit, Binance, and OKX enable the trading of various crypto derivatives. Here, traders can place positions using leverage.

While spot trading volumes fell the fastest in May, the number of crypto derivatives contracts placed contracted at a slower pace. 

This could suggest that though potential crypto buyers steered clear from centralized cryptocurrency exchanges, centralized cryptocurrency derivatives platforms’ relatively high liquidity allowed some traders to keep posting trades capitalizing on gyrating crypto prices in May.