It’s All About Size (Volume): Understanding the Significance of Bitcoin & Crypto Assets Trading Volumes
Volume plays an integral role in the trading of an asset. When it comes to cryptocurrency space, it is no different. In a price chart, trading volume is usually seen at the bottom vertical bars. On comparing the height of these bars, one can assess a volume‘s activity in respect to the timeline of an asset.
In crypto space, there is a number of sites like Coinmarketcap that offers a detailed division of the volumes in terms of a specific asset-wise, the volume of an asset on different markets and exchanges, and the total volume of the market.
Talking about the leading cryptocurrency Bitcoin, for instance, at the time of writing, it has registered a volume of $8.2. billion in the past 24-hours. Among the crypto exchanges, BitMex holds the highest share of 5 percent, however, it is a derivative market, a trading platform that offers 100 percent margin. Currently, Coinbene, OKEx, EXX, ZBG, and BitForex register the share of 2 to 4 percent of Bitcoin trading volume.
High & Low Trading Volume
High trading volume shows significant money flow in an asset that means rising interest as well. When trading volume picks up, it means more people are trading that asset, say Bitcoin. It helps in gauging the interest of traders and investors in the Bitcoin.
However, high trading volume with the price going up means a bull market that will take the price upwards while high trading volume when the price is going down means a bearish market that means the price can be expected to go down.
The time Bitcoin price hit a peak in 2017, Bitcoin boosted a significant surge in trading volume that led to a surge in its price. While throughout last year, the volatility took a dip and trading volume remained extremely weak only to take a hike recently.
A significant low trading volume also leads the market vulnerable to high price swings as usually happens in the low market-cap cryptocurrencies that register low trading volume. The dramatic price movements sometimes see these low-cap altcoins rises as much as 100 percent in a few hours.
Exhaustion Moves & False Breakout
At the bottom of a market, falling prices force out a large number of traders that results in volatility and increased volume. After a spike, volume sees a decrease as well as after a point traders don't want to pay for a certain asset.
A rise in volume shows strength in a move if there is an initial breakout from a range. However, if there has been a breakout but little change in volume or declining volume indicates a higher possibility for a false breakout that means lack of interest.
Faults for its Merits
Volume has it merits no doubt, but it isn't without any faults as the volume on crypto exchanges can also be faked.
Fake volume is known as “spoof trading” where traders put in orders for other traders to see only to withdraw them before they are filled. A number of exchanges have been caught up in scandals where volume was displayed incorrectly in order to manipulate traders into a risky trade.