Art at the Bitcoin 2021 Convention cryptocurrency conference at the Mana Convention Center in Miami on June 4, 2021.
Marco Bello | AFP | Getty Images
Cryptocurrencies are in a summer low as they go through a two-month correction period after a series of negative stories.
Trading volume on the largest exchanges, including Coinbase, Kraken, Binance and Bitstamp, fell more than 40% in June, according to data from crypto market data provider CryptoCompare, which cited lower prices and lower volatility as the reason for the decline.
In June, Bitcoin price hit a monthly low of $ 28,908, according to the report, ending the month down 6%. A daily high of $ 138.2 billion on June 22nd was 42.3% lower than the intra-month high in May.
According to Reuters, the report pointed to China as a major catalyst, which had reported on it earlier Monday. China’s latest of many anti-industry efforts over the years had a bigger impact than ever. However, investors and experts in the cryptocurrency ecosystem continue to see a long-term positive trend for Bitcoin and other cryptocurrencies.
“The Chinese action has created a lot of fear that is showing up in the markets,” said Teddy Vallee, chief investment officer at Pervalle Global. “The digital asset ecosystem has gotten a slap in the face, so it’s currently on the ropes against the battle in the middle of the ring. Normally, when there is a big sell-off, the participants are quite scared and withdraw their chips. “
Vallee added that he still doesn’t see large returns from the exchanges, funding rates are still negative, and the number of new wallets is lower.
Factors behind the slowdown
At the end of June, China ordered a halt to cryptocurrency as it prepares to launch its own state-backed digital currency. This resulted in mining operations being closed in various provinces, where 50 to 60% of all mining output was hosted by Bitcoin.
Gabor Gurbacs, Director of Digital Assets Strategy at VanEck, noted that when the miners left China, they didn’t do as much with the bitcoins they mined.
Additionally, the emerging ESG narrative surrounding Bitcoin’s proof-of-work consensus mechanism and negative regulatory overtones from the Financial Action Task Force, the intergovernmental agency to combat money laundering, have further depressed sentiment in the markets, Ben Forman, managing partner at alternative investment firm ParaFi Capital, said CNBC. ESG stands for environmental, social and governance factors.
“When those stories began to penetrate the market in May, sentiment sank to single-digit levels on a scale from 1 to 150,” said Nick Mancini, research analyst for the crypto sentiment analytics platform Trade the Chain. “Ultimately, this has resulted in Bitcoin’s trading volume dropping almost in half since its peak, and down a further 32% from its June average.”
Gurbacs also said that summer can be a time of lower volume, even for stocks, and that investors may still feel the pain after the crypto market lost so much of its value this year.
Also that year, he added, the price of Bitcoin climbed up to $ 60,000 and Ether climbed to $ 4,000, bringing a lot of new interest and new investors to the cryptocurrency who have not yet survived a bitcoin bear market.
“People are fed up with the rock pools,” said Gurbacs.
When cryptocurrencies hit their all-time highs this year, “a lot of people invested up and a lot of new people invested at the top and they lost money,” he added. “Half the market is gone, we can’t expect these to be equal amounts when the market basically has a lot of people who are new to the industry and who are scared.”
Volume still higher than a year ago
Despite the dramatic drop in trading volume, it’s still much higher than it was last year, said Clara Medalie, head of research at crypto market data provider Kaiko.
“Volumes fell on pretty much every exchange in June, but total volumes are still orders of magnitude higher than they were a year ago today,” Medalie told CNBC.
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“The June volume is still in the top five months ever recorded,” she added. “Although the decline was steep compared to May, this is an unfair comparison as May saw the highest volumes ever recorded due to unprecedented liquidation events. The volumes have returned to the amounts from early 2021 and are still massive compared to 2020. “
Mancini of Trade the Chain still sees a more bullish – rather than bearish – outlook for crypto and expects volatility and volume to return to previous highs.
“The Bollinger Bands of the Bitcoin daily candle are now stretching very much like they did in July 2020, resulting in explosive bullish price action,” he told Bitcoin as a currency and miners moving to more democratic nations, Bitcoin is geared towards growth rather than shrink.”
Bitcoin derivatives peaked at $ 230 billion in May before falling to $ 45 billion on July 9, according to Trade the Chain.
“The only positive news from the derivatives markets is that the put-to-call ratio of Bitcoin options is now 0.60, up from a high of 0.65 in June, meaning traders as the months progressed get less bearish, “said Mancini.