Crypto’s Huge Volume Spike On Monday Signals Potential Market Bottom

What Happened:

Reported activity from various retail and institutional crypto marketplaces exhibited sharp trading spikes on Monday, with Gibraltar-based LMAX Digital, one of the largest institutional spot bitcoin trading venues, seeing total notional volume of $1.79 billion, a 261% increase over the 30-day average. The exchange indicated that this could be encouraging news, indicative of “renewed demand at discounted prices from medium and longer-term players.” San Francisco-based Kraken also saw daily spot volume rise from $599 million on Sunday to $2.1 billion on Monday – its futures volume more than doubled and reached $632 million.

Decentralized exchanges are also seeing surging volumes. Analytics firm Dune reported that daily DEX volume reached $7 billion on Monday, up from $1.0 billion – $2.5 billion daily during the past month. Uniswap gained the lion’s share of that spike in DEX activity, seeing its daily volume peak at $4.5 billion Monday up 137% from the previous day.

Key Background:

The pickup in client volume at the string of consecutive down days – see chart below – could be a sign of retail capitulation, while institutional money with deeper pockets may be scooping up bargains. The rarified sentiment following the demise of Terra and now Celsius is exposing some poorly engineered uses of blockchain technology, and the mess that both these firms are leaving behind undermines confidence in other more viable projects. This does not help, especially during such a gloomy macro picture looking at recessions and stagflation.

High volume spikes in crypto and traditional assets follow major events, such as the dot.com bubble burst in 2001, the credit crisis bubble burst, and the covid crash in March 2020. The high trading volume today is also reflective of a market that is repricing the impact Luna and Celsius disappointment on remaining crypto assets. As you can see below, many times these surges coincide with short-mid term bottoms.

Key Quote:

Though the volume was accompanied by lower prices, it could also be encouraging and indicative of renewed demand at discounted prices from medium and longer-term players.

LMAX Digital

Outlook:

The market is calmer today, but we could see surging volumes once again if another major collapse emerges in the crypto world, or we see excessive margin calls and pullbacks from DeFi in the future. All of this will give credence to what remains as a distinct possibility of rising contagion impacting negatively even sound digital assets projects.

This is not academic, as research firm Coinmetrics characterizes Celsius as a “high-leverage hedge fund” whose assets are deployed across DeFi platforms for its products to offer double-digit returns. If Celsius calls up capital from DeFi protocols where it had been loaned out, the two outcomes could be that the funds can’t be immediately available or that they are returns and lead to severe illiquidity in the DeFi tokens that had come to rely on yield farming capital. This could lead to more investor panic and trading.

On the plus side, the pick up in crypto bargain hunting by institutional firms is a sign that despite all the misgivings of the macro picture and certain crypto projects, sanguine investors can look past those temporary troubles and are willing to invest fresh fiat into crypto if the price is right.