Trading volumes on major centralized cryptocurrency exchanges (CEX) continued to contract throughout May as regulators cracked the whip across the United States and around the world. In a report compiled Per CCData, records show that combined spot and derivatives trading volumes on platforms like Binance and OKX fell 15.7% to $2.41 trillion.
This was the second month of declining trading volumes when crypto asset prices mostly moved sideways and general volatility back to early 2023 levels.
Transaction volumes drop to double digits in May
A notable development is that spot trading volumes fell 21.8% in May to $495 billion.
At this pace, trading volumes fell to levels last seen in March 2019. Meanwhile, crypto derivatives 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 volume, also fell to 43% in May. This development follows the exchange's announcement to halt fee-free spot trading for USDT pairs.
Yet at this level, Binance remains dominant and relatively more active than competitors like Coinbase, Kraken, and Bitfinex.
CCData notes that the general decline in Binance's market share and trading volumes could also be attributed to general market weakness and increased scrutiny from regulators, particularly in the US.
Market weakness was visible in May as Bitcoin prices failed to rise above the $31,000 recorded in April. Instead, Bitcoin continued to decline, falling to $25,800 at some point in May. Prices are currently struggling below $30,000.
With the U.S. Securities and Exchange Commission (SEC) suing Binance and Coinbase, claiming they offer unregistered securities, trading volumes may continue to decline in June 2023, which could impact liquidity.
Is Crypto Sentiment Deteriorating?
Spot trading indicates the natural demand for a particular crypto asset in the cryptocurrency market. Spot buyers generally 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 current market conditions.
The decline in trading volumes therefore reflects a sense of caution among traders. Subsequently, this can affect overall trading activity and, therefore, market liquidity.
On the other hand, crypto derivative traders engage in market speculation, with the aim of profiting from the volatility of crypto assets. Cryptocurrency platforms such as Bybit, Binance, and OKX allow 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 although would-be crypto buyers have moved away from centralized cryptocurrency exchanges, the relatively high liquidity of centralized cryptocurrency derivatives platforms has allowed some traders to continue posting trades by capitalizing. on gyrating crypto prices in May.
Feature image from Canva, chart from TradingView