A Closer Look at Bitcoin’s Rally Suggests the Depth of Demand Is Deceptive

Crypto trading volumes seem to have surged last quarter as token prices spiked higher. But looking at the data more closely paints a different picture.

When looking at overall trends, Bitcoin trade volumes seem to have spiked, with two trading pairs standing out during that stretch — Bitcoin-Tether and Bitcoin-BUSD, a relatively little-known stablecoin trading on the Binance platform that has since halted issuance, according to crypto market data provider Kaiko. Those two were the top-traded duos on that exchange in the first three months of the year.

But isolating just the Bitcoin-dollar trade pair — which trades on exchanges like Coinbase and Gemini — shows volume was the lowest since 2020, the researcher said. During that time, regulators cracked down on the industry with a number of lawsuits and actions.

The Bitcoin-dollar pair measure may be a better way of representing what volumes actually looked like without zero-fee trading during the first three months of the year and shows a “starkly different trend,” according to Kaiko’s Clara Medalie, who published research on the topic alongside with Conor Ryder, research analyst at the firm.

“That’s where the Binance effect comes into play — essentially the vast majority of Bitcoin volume over the past year has been for zero-fee on Binance exchange,” said Medalie in a YouTube video discussing the firm’s findings.

Binance, the world’s largest crypto exchange, last year introduced zero-fee trading on a number of market pairs. That helped it gain more than 20% in market share, according to Kaiko. But in March of this year, the exchange halted that offer for 13 Bitcoin trading pairs (though it still allows it for Bitcoin-TrueUSD, which now makes up the largest Bitcoin trading pair).

Since Binance stopped its zero-fee trading program, there’s been a sharp drop-off in daily Bitcoin volume, Medalie said. Current trends are about half what they were prior to the halt.

On top of its winding down the zero-fee program, the company was also sued by the US Commodity Futures Trading Commission for alleged violations of derivatives regulations. Binance has said it doesn’t agree with many of the agency’s characterizations.

Still, in spite of the regulatory crackdown on the space, Bitcoin has managed to rally 71% this year, while other tokens have also surged. The largest coin on Friday traded around $28,200, having hovered above $30,000 earlier in the week. It’s on pace for its first weekly decline in four.

A lot of crypto market watchers have been paying close attention to trading volumes and liquidity numbers given that many retail investors fled the market as scandal after scandal dominated the industry last year. Moves, one way or the other, can be exaggerated when trading volumes are thinner.

“Price swings are always more volatile in less-liquid markets,” said Chris Gaffney, president of world markets at TIAA Bank.

Retail activity has dropped off across the globe, with global exchange traffic down 25% since the summer, according to new research from K33 and EY Norway. Their findings say that from June to August 2022, crypto exchanges clocked 630 million visits. Last quarter, that number fell to 475 million. In addition, crypto-related websites have seen plummeting traffic when compared with last summer.

Noelle Acheson, author of the Crypto Is Macro Now newsletter, said that while activity is climbing in crypto derivatives, the same is not yet true for the so-called spot, or cash market.

“There’s a lot of uncertainty,” she said via email. “Which suggests crypto interest for now is concentrated in the more sophisticated market segments while traditional macro investors and retail participants are still in wait-and-see mode.