So why crypto market is down ?
The crypto markets have been on a downtrend for a large part of this year. Many crypto experts have claimed that this downtrend is the start of the bear market.
This drop in value has also led to a dip in trading volume in the spot markets. One can observe the steady decline of crypto spot markets over the past year based on trading volume data for digital assets.
At the peak of the previous bull run, trading volumes in the crypto spot market hit $3.8 trillion in April 2021. However, there was a drop in volume, and trading volumes hit $2.5 trillion in September 2021. Currently, the trading volume in the crypto spot markets ranks between $1.26 and $1.62 trillion.
This drop in value has also affected crypto exchanges that offer traders and investors access to the spot markets. For example, in September 2021, the Binance exchange recorded about $828 million in traded volume on its spot markets. As of March 2022, this exchange could only handle $490 billion of spot trades.
Similarly, crypto exchanges like OKEx and Huobi Global handled $181 billion and $168 billion in spot trade during September 2021. As of March 2022, both exchanges could only take $75.9 billion and $65 billion in spot trades.
For many new to this space, the downtrend in the crypto markets is primarily caused by the dip in the price value of most cryptocurrencies, starting with the leading digital asset, Bitcoin.
However, several other factors are responsible for the current downtrend in the crypto markets. These factors are also responsible for the drop in trading volume in the crypto spot markets. Let us consider a few of these factors why crypto market is down.
Crypto Market Today: US Impending Rates Hike
The announcement of an impending interest rate hike was provided by Federal Reserve chairman Jerome Powell in March 2022. At the time of the announcement, leading crypto asset Bitcoin suffered a dip in price, with Bitcoin dropping from a $51,000 price range on December 27, 2021, to $34,000 by January 22, 2022.
In the announcement, Federal Reserve officials announced their intention to increase interest rates repeatedly over the course of the year. Currently, there are plans to increase the interest rates up to seven times.
This announcement led to a meltdown in the crypto markets, with several crypto traders cashing out their investments due to the panic in the markets. During this period, it was estimated that traders sold off $300 billion worth of Bitcoin.
Other crypto assets also suffered huge drops in prices during this period. For example, the Solana token dropped from its $200 price range on December 27, 2021, to $81 by Jan 24, 2022.
Crypto spot trade: Effects Of US And European Regulations
Apart from the impending interest rate hikes, the crypto markets also suffered negative price movement due to concerns over upcoming crypto regulations. Many within the crypto industry expected to see regulations aimed at banning the crypto markets across different countries.
As a result, a lot of crypto traders reduced their trading activities during the first quarter of 2022. These concerns are not unfounded, as European lawmakers had plans to introduce harsh laws for monitoring the crypto industry within their Jurisdiction.
As of March 25, 2022, European lawmakers at the Economic Affairs Committee held a vote to determine if they allow crypto users to retain anonymity attached to crypto transactions. This move was put forward at the bidding of anti-money laundering officials from European Union member nations.
These officials cited the use of cryptocurrencies for funding terrorism and other illegal activities. Under the proposed laws, crypto users must complete identity checks regardless of the size of the transaction. There has been no decision made on this matter as of the writing of this article.
However, in a first of its kind, the United States government released an executive order meant to provide guidelines for regulating the crypto industry. The release of this executive order on March 9 attracted the attention of many crypto traders and investors alike.
Another factor that contributed to the drop in trading volume in crypto spot markets was fears about the outcome of the order. However, in a positive result for the crypto space, the executive order does not ban the use of crypto assets in the United States.
Instead, the order defines six areas of priority the US government intends to work on concerning the crypto industry. Some areas include protecting global financial stability, protecting U.S. interests, and promoting responsible innovation within the US crypto space.
Additionally, the government plans to prevent illicit uses, encourage financial inclusion, and maintain U.S. leadership in the crypto industry. Furthermore, the order directs all federal agencies in the US to harmonize their approach to regulating the crypto industry as a result we can see why crypto market is down.
Crypto Spot Trade: Likely Prospects For The Market In Q2
It is impossible to state clearly what the future holds for the crypto markets in the second quarter of 2022. However, we can take a glimpse at previous movements to determine the likely prospects of the crypto space.
Many financial analysts hold the belief that the crypto industry will grow with more adoption over the coming years. Previously, the adoption and use of Bitcoin as a payment option by electric car manufacturer Tesla led to a boom in the value of many other crypto assets.
Although not currently accepted as a payment option by Tesla, many other top-rated financial companies have indicated an interest in adopting a wide range of digital assets as payment options in their portfolios. This includes platforms like PayPal and Square.
Such broad institutional adoption among big brands in the tech and financial space will undoubtedly lead to a significant push for the crypto industry. These will also lead to an increase in the volume in the crypto spot markets.
Additionally, favorable regulations for the crypto industry can also lead to immense growth. Such laws can help to define governments’ stand on the crypto industry. It can also aid innovators within the crypto space in developing products and services that are compliant with existing financial laws.
A combination of the factors during Q2 will surely boost the volume of crypto assets traded in the spot markets. However, we must clearly state that FED proposed interest rate hikes is yet to be implemented.
The result of full implementation is still unknown for the crypto markets. However, many expect the crypto markets to recover in case of a sharp drop in prices. Speaking on the possible effects of the interest rate hikes on the crypto markets Ed Moya Senior Market Analyst at Oanda stated “The long-term outlook is still bullish for both the top two cryptocurrencies, but the short-term is looking ugly.”
Conclusion
Like many other sectors of the crypto industry, the crypto spot markets have experienced a drastic drop in trading volume. This drop is a result of interest hikes, upcoming crypto regulation, and a loss of confidence on the part of crypto traders and investors alike. In this new reality the crypto stop trading drop is a natural process of market trying to adjust.
Despite all of these factors, the crypto industry still continues to maintain a $1.9 trillion market cap, with the crypto spot market ranging between $1.26 and $1.62 trillion in trading volume throughout Q1 2022. In the long term, we expect to see an increased trading volume of crypto spot markets eclipsing previous highs.
