Crypto trading volume slumps, signaling market exhaustion: Analysis

Crypto trading volumes and dwindling digital asset prices are flashing signs of trader exhaustion and potentially weaker market momentum, according to analysts. 

“When trading volume for major cryptocurrencies consistently drops, even during slight price recoveries, it typically points toward diminishing trader enthusiasm.”

Santiment added that trader behavior “indicates a mix of exhaustion, hopelessness, and capitulation” following further market capitalization declines over the past fortnight. 

Total market capitalization has declined almost 25% since the beginning of February, shrinking by $900 billion as the crypto market correction deepens. 

Santiment stated that traders are becoming cautious, suggesting they might not believe that the current upward price movements will last. “Essentially, reduced trading activity reflects uncertainty, as fewer traders are convinced that buying at current levels will yield profitable outcomes,” the analysts added.

Weakening trading volume amid minor price bounces can serve as an “early warning sign of weakening market momentum,” Santiment reported, adding that without robust buying participation, price gains can quickly lose steam, “as there simply isn’t enough underlying support to sustain the upward trend.”

“This leads to the possibility that any rebound could be temporary, with prices vulnerable to another downturn.”

However, shrinking volume during minor rebounds isn’t necessarily a direct bearish signal, it said, adding that volume is a metric that measures participation from both retail and institutional traders and it needs to start rising before prices do.

 “To signal a healthier and more sustainable recovery, bulls generally will want to see both rising prices and rising volumes simultaneously.”

Crypto market capitalization is currently around $2.8 trillion, which is where it was this time last year before seven months of consolidation followed.