Cryptocurrency update: Bitcoin price drop prompts trading fall
The ongoing BTC lull and previous market crash may have caused a freefall in crypto trading volumes.
Crypto trading volumes fall as BTC price stalls
Trading volumes on major cryptocurrency exchanges dropped over 40% in June according to CryptoCompare data.
The market researcher found that trading activity had plummeted on the largest exchanges, including Binance, Coinbase, Kraken and Bitstamp.
Bitcoin’s current price is likely behind the drop. After peaking at record highs in April, the world’s most popular token has struggled to regain value after crashing to below $29,000 in June.
China’s move to crackdown on crypto mining operations and wrest control of decentralised finance markets into the hands of the government has led to Bitcoin’s struggles. Notably, with Bitcoin miners having to move out of China, the hash rate, or the rate at which new BTC tokens are minted, has fallen. Supply may be even tighter than usual.
Other criticisms around the Bitcoin from an environment, social and governance perspective has also put a dampener on BTC performance. In an increasingly environmentally conscious world, stories of BTC mining consuming as much power annually as Sweden may have put investors off.
The regulatory framework around crypto trading in general is still being hashed out on a global scale. When it comes to Bitcoin, however, intergovernmental bodies like the Financial Action Task Force, are keeping a close eye on its network. Money laundering and using BTC to fund illegal activities is something many watchdogs are keeping a close eye on.
Other financial and institutional bodies are stepping up their efforts to safeguard retail investors against the massive volatility and uncertainty crypto trading can bring too.
Then there are other concerns around the naivety of BTC investors and traders. Many are total newcomers to these two disciplines. They may not have the capital or the experience necessary to whether a Bitcoin bear market, as they only just got in when goings are good.
Even if trading volumes have slumped in June, they are still some of the highest volumes seen in crypto trading yet. But with half the market gone, and the BTC price in the midst of a lengthy correction, it may take something big to entice investors back.
Of course, many large scale buyers with the capital to match may be using this as a period of accumulation. We’ve seen Bitcoin whales snaff up tokens left right and centre during price lulls, and this may be what we’re seeing in the here and now.
El Salvador BTC plans may put a squeeze on the global network
El Salvador’s plan to introduce Bitcoin as legal tender continues to draw flack.
JPMorgan has warned that this would have negative ramifications for both the token and El Salvador should plans go through.
According to a report from the US megabank, such a scheme would put enormous strain on the Bitcoin blockchain network. It would severely limited Bitcoin as a method for exchange, the report said, with issues around illiquidity and the token’s trading nature causing big hurdles.
JPMorgan analysts said that Bitcoin is highly illiquid, noting that most Bitcoin trading volumes are internalized by major exchanges, with more than 90% of Bitcoin not changing hands in more than a year.
“Daily payment activity in El Salvador would represent 4% of recent on-chain transaction volume and more than 1% of the total value of tokens which have been transferred between wallets in the past year,” the report said.
JPMorgan also has worried about convertibility. A continuous imbalance of demand for conversions of Bitcoin and the United States dollar could “cannibalize onshore dollar liquidity” and eventually introduce fiscal and balance of payments risk, according to JPMorgan.
El Salvador’s government passed a bill in June that states Bitcoin would be accepted there as legal tender alongside the US dollar. Under the bill’s stipulations, merchants across El Salvador must accept BTC if offered as a method of payment.
The country also wants to be Central America’s mining hub, with an audacious plan to harness the power of volcanos to power its mining operations.
Coinbase a “tactical trade” says Goldman
Coinbase, the US’ largest crypto exchange, may be on course to beat Wall Street earnings.
The exchange’s Q2 2021 results are due soon as earnings season has begun on Wall Street. Goldman Sachs has identified the stock, which trades under the COIN ticker, as buy.
In an interesting bit of analysis, Goldman researchers say that the current parade of negative crypto headlines could actually be benefiting Coinbase. What Goldman calls “significantly higher elevated crypto asset volatility”, or the wild price action we’ve been seeing in recent months, may have led to increased pre-BTC collapse trading volumes. Coinbase can then capture this activity through its fees.
Even if BTC’s price stays low, Coinbase may be able to profit off uneasy traders looking to divest and others looking to buy in a market downturn.
Goldman acknowledged its analyst’s earnings per share estimate for Coinbase is “11% above consensus” for the year ahead – way ahead of the Wall Street consensus.