Coin Market Cap and Crypto Market Volume: Trends in the Growing Bitcoin Ecosystem


In well established and well regulated financial markets, there is a definite correlation between trading volume and market cap. The larger the market cap, the higher the trading volume. Cryptocurrencies, on the other hand, look a bit different when you rank them by their 24-hour trading volume.

We see conflicts with generally held beliefs about volume and market cap. Tether UDST, a US Dollar backed stable coin, has seen the top trading volume of nearly double the closest coin (not including the Bitcoin juggernaut which tops all lists). That, despite having only the 8th largest market cap.

So where Ethereum has a market cap of $17.6 billion to Tether's $2.4 billion, the difference in trading volume is stark. Tether has a 24hour trading volume of $11.2 billion compared to Ethereum's $5.2 billion. Eight times smaller market cap, with almost double the trading volume over the past 24 hours.

Tether Is Not The Only Outlier

Tether though has a reason to be so highly traded. It is the most popular and most used stablecoin. Backed by the US dollar, it is used as an on-ramp coin for people who are moving fiat to crypto and vice versa. It has been considered the safest coin to on-ramp with, though that view is changing somewhat.

All the other coins in the top 10 make sense more or less with the exception of Binance. The 7th largest coin in the world, traded on one of the largest exchanges in the world is sitting nearer to 20 than to its actual position.

Other outliers can be seen as well. Tezos, for example, has a market cap of 773 million dollars, but a relatively small trading volume of just 5 million dollars over the course of the 24 hours. Then again, Zcash had done 195 million worth of trades with a total market cap of around 435 million dollars. One reason for Zcash being traded so much is the anonymous nature of the cryptocurrency and more people willing to use it as an actual currency.

TrueUSD and Paxos are numbers 21 and 22 respectively when it comes to trading, whereas their market cap keeps them at numbers 60 and 36 respectively. The fact they are stablecoins allows them to be used by canny traders to take advantage of price fluctuations in the rest of the market.

Compared To Stocks, Crypto Is Weird

Looking at stocks as a comparison, we can see correlations between market cap size and daily trading volume. The largest traded by volume are also among the most valuable companies on the stock index. Looking at Nasdaq's most traded we can see this instantly. Currently Netflix, Qualcomm, Amazon, and Apple are the top 4 traded stocks on the exchange. They are also among the largest companies by market cap on the exchange. There is definitely a correlation between market cap and trading volume.

However, there is a reason why crypto is so weird compared to traditional stocks. This is because of the decentralized nature of crypto. If you want to buy stocks in the companies mentioned previously (Apple, Netflix), then you have to go to a specific exchange. Crypto doesn't have that issue.

Most cryptocurrencies are traded on a number of exchanges. So you can trade Bitcoin for Litecoin on one exchange, transfer that Litecoin to buy Zcash on another exchange which you could then transfer to another exchange and use that Zcash to buy Binance coins. This skews the trading data by quite a margin as different exchanges have different reporting methodologies. There is also the often repeated accusation that CoinMarketCap does not police the exchanges form where it receives the figures the public sees. Many in the industry are adamant that a good chunk of the trading data is not real.

There are also market inefficiencies to take into account. Tezos was an outlier, but the reason could be because it is not listed on any of the eight largest exchanges in the world. The largest where tezzies are traded is Huobi, the world's ninth largest but the largest trading volume of tezzies comes from BitMax, which ranked 50th in the world. Traders are not going to be bothered with a coin that they can't buy and sell quickly and easily.

Then there is the whale problem. There are definitely people who bought coins at the right time and simply sit on them waiting for a better time to use them. The concentration of the ownership of a coin can have an immense impact on its trading volume.

All prices and comparisons were correct at the time of writing.

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