- In nearly every aspect, crypto fatigue has settled in. Prices have stabilized, trading volumes have dwindled, and it seems like hardly anyone outside the industry cares about crypto anymore.
- To see just how muted crypto has become, you can look at trading volumes. Centralized exchanges like Coinbase and Binance are handling daily trading volumes of approximately $30 billion, nearly half of what they were a year ago.
- Decreasing volumes are having negative effects. Market makers, who provide liquidity and often trade against retail investors, are pulling back.
The Bitcoin price has been in a deep slumber for weeks, and investors are getting bored. So, what are industry leaders saying about this situation?
Bitcoin Price Has Been Dormant for a While
In nearly every aspect, crypto fatigue has settled in. Prices have stabilized, trading volumes have dwindled, and it seems like hardly anyone outside the industry cares about crypto anymore. Google searches for Bitcoin are down 87% from their peak in 2021, and “cryptocurrency” is down 96%.
Crypto trading has become “as exciting as watching paint dry,” according to Dave Weisberger, the head of CoinRoutes, a crypto trading platform.
This slumber has several explanations, one of which is that artificial intelligence (AI), a new technology player, has taken the wind out of crypto’s sails. Companies like BlackRock, Coinbase Global, and Fidelity Investments are making strides, and there’s great hope that a Bitcoin-based exchange-traded fund (ETF) will soon be approved, which could spark excitement. However, more than an ETF might be needed to revive Bitcoin and the broader crypto economy.
To see how quiet crypto has become, you can look at trading volumes. Centralized exchanges like Coinbase and Binance are handling daily trading volumes of approximately $30 billion, which is nearly half of the levels seen a year ago. According to CoinMarketCap, this volume is roughly 15% of the approximately $200 billion daily trading volume when Bitcoin was at its 2021 high.
Bitcoin trading makes up a significant portion of this, and its lack of movement for months has reduced exchange volumes. The token has increased by 57% this year but has been trapped in a narrow range between $25,000 and $30,000 since mid-March. Tal Cohen, the U.S. General Manager of Kraken crypto exchange, says, “When prices aren’t moving, a lot of people lose interest.”
When the probability of making money is lower, traders seem to move forward. Some volatility measures are at “the lowest we’ve seen,” according to Weisberger, leading retail investors toward “shiny, shiny objects.” Areas like stock options are where retail volumes are increasing. Stocks related to artificial intelligence, such as Nvidia, have attracted $335 million in net asset inflows over the past 12 months, according to VettaFi, a financial research and data company, which deals with “disruptive technology” ETFs.
Decreasing volumes can have the potential to widen price spreads in transactions. Evgeny Gaevoy, the CEO of market maker Wintermute, noted that the company noticed a lack of “depth” in exchange order books, which means large buy or sell orders, even for highly traded tokens like Bitcoin and Ethereum, could have an outsized impact on prices.
According to Weisberger from CoinRoutes, the cost of large block transactions is rising faster than the cost of small ones. However, even retail traders may start to notice higher fees. PayPal Holdings’ Venmo service plans to raise spreads to 1% starting from October 23, which is equivalent to a 0.5-point fee increase.
Crypto software development is still ongoing, but it’s becoming more challenging to find funding as interest wanes among Silicon Valley financiers. According to PitchBook, venture capital financing for crypto companies dropped 71% between the second quarters of 2022 and 2023, equating to about 12% of the financing for AI and machine learning startups. Financing in this category has decreased by 5% over a 5-year period.
While VC rankings may reflect that crypto hasn’t yet established itself as a mainstream technology, ChatGPT and other AI applications are on the horizon. Christopher Jensen, the head of digital asset research at Franklin Resources, said, “You’ve seen an immediately usable use case. Why don’t we have that in crypto?” Franklin Resources is a company attempting to launch a Bitcoin ETF and is involved in other crypto initiatives.
None of this paints a positive picture for exchanges like Coinbase. Trading volume on Coinbase dropped 37% between the first and second quarters. While the company compensated for some of this with fees—transaction revenue only dropped 13% in the second quarter—Chief Financial Officer Alesia Haas said at a conference in September that she expected fees to decline as competition increased among traders. “When there’s low volatility, like we’re seeing today, people just sit and wait,” she said.
At Robinhood Markets, crypto trading volume dropped 58% year-over-year in August. Revenue generated from crypto trading fell 47% between the second quarters of 2022 and 2023, decreasing to $31 million. Johann Kerbrat, the crypto general manager at Robinhood, emphasized his low fees while waiting for the cycle to turn.
Some upcoming events could revive crypto. According to Doug Schwenk, CEO of Digital Asset Research, one of them could be the approval of a spot-based Bitcoin ETF. Last month, a federal court indicated that it might have made an error in rejecting Grayscale’s proposal to convert its Bitcoin Trust (GBTC) into an ETF and filed a lawsuit against the Securities and Exchange Commission (SEC). Some analysts believe that the agency may not challenge the Grayscale decision or may approve rules leading to an ETF, paving the way for this development.
The effects of Bitcoin’s halving event
Another catalyst could be a Bitcoin “halving event” in April. The amount of new Bitcoin tokens issued per approved transaction block by the network will be reduced from 6.25 coins to 3.125 coins. Low supply could drive up prices, and demand could increase due to strong retail interest around previous halving events, says Schwenk. This would help exchanges like Coinbase and Robinhood.
However, there are still obstacles to overcome. The SEC could delay the approval of a Bitcoin ETF and escalate its fight against Coinbase and other industry players. Sam Bankman-Fried, accused of the largest crypto scam, will soon go to court (he claims to be innocent). This case could bring crypto back into the spotlight for the wrong reasons. As FTX’s liquidation continues, Bitcoin and other tokens could increase supply and suppress prices if demand doesn’t materialize. Schwenk says, “If I were skeptical, I’d say part of the story is the death of crypto. The market needs a return of the retail side. If it doesn’t come back, Bitcoin could sleep for a very long time.
