Cryptocurrency spot trading volumes have halved since October, falling from approximately $2 trillion to $1 trillion by the end of January, signaling weakened investor demand and a significant liquidity drought across major exchanges.
Bitcoin, currently trading down 37.5% from its October peak, has experienced the most dramatic volume contraction. Major exchanges like Binance have seen Bitcoin spot volumes drop from $200 billion in October to around $104 billion in recent weeks, according to data from CryptoQuant.
CryptoQuant analyst Darkfost attributed the volume collapse to weak spot demand and broader market corrections. “The correction has been largely driven by the Oct. 10 liquidation event,” Darkfost said on Monday, highlighting a specific catalyst for the ongoing contraction.
The volume decline represents a return to levels not seen since 2024, indicating what analysts describe as a “clear disengagement from investors” in the cryptocurrency market. This withdrawal of liquidity comes as risk aversion has gripped digital asset markets.
Beyond spot volume declines, market liquidity faces additional pressure from stablecoin outflows on major exchanges. The stablecoin market cap has contracted by approximately $10 billion, further restricting the capital available for trading cryptocurrency assets.
These outflows suggest investors are reducing their active positions and moving funds away from exchanges, a pattern consistent with periods of market uncertainty and reduced confidence.
Justin d’Anethan, head of research at Arctic Digital, pointed to macroeconomic factors as the primary near-term risk for Bitcoin. The uncertainty surrounding Kevin Warsh’s potentially hawkish stance as Federal Reserve chair could result in fewer rate cuts, a stronger dollar, and higher real yields—all factors that pressure risk assets, including cryptocurrency.
Higher real yields and dollar strength have historically weighed on speculative assets like Bitcoin, which typically benefit from lower interest rates and currency debasement concerns.
However, d’Anethan noted that Bitcoin’s long-term narrative as a hedge against reckless monetary policies remains intact. He pointed to potential catalysts for a recovery, including a resumption of strong Bitcoin ETF inflows, clearer pro-crypto legislation, or softer economic data that could prompt the Federal Reserve to ease policy.
When Will Bitcoin Bottom?
Alphractal founder and CEO Joao Wedson outlined specific conditions needed for a Bitcoin price bottom. Short-term holders (STH) must be underwater, while long-term holders (LTH) have yet to carry significant losses.
Historically, bear markets only conclude when STH realized price falls below LTH realized price. Currently, STH realized price remains above LTH levels, though a drop below the $74,000 support level could signal Bitcoin’s entry into bear market territory.
The market contraction, while painful for active traders, may serve a necessary function. Analysts suggest the recent moves could help clear out excessive leverage, reduce speculation, and force investors to reconsider cryptocurrency valuations on a more fundamental basis.
See also: Spot Buying vs Long-Term Holding: What Actually Works in Crypto?
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