Bitcoin, by far the largest digital currency, is not starved for attention, but that does not mean trading volume in the cryptocurrency is always robust.
In fact, some data points suggest that when the price of the digital currency falls, so does its volume.
“The average number of trades recorded daily has roughly dropped in half from the December highs and touched its lowest in two years last month, even as Bitcoin became a household name and roared back above $10,000,” reports Bloomberg.
Bitcoin futures debuted on the Cboe in December, followed by a launch on the CME. Nasdaq Inc. is still considering entering the bitcoin futures competition. Market observers previously expected Nasdaq to launch futures on the digital currency this year, perhaps as early as the second quarter.
However, bitcoin futures volume is not yet taking off due in part to the large margin requirements associated with these derivatives. Derivatives help increase liquidity and improve markets for an asset category by allowing investors to bet on ups and downs of an asset, evening allowing individuals to adopt market-neutral strategies.
“The transaction data may be bad news for Bitcoin bulls, according to Charles Morris, chief investment officer of Newscape Capital Group in London, who invests in cryptocurrencies. Trading and purchases on the Bitcoin network, which can be measured by metrics like transaction volume, is indicative of price direction, he said,” according to Bloomberg.
Exchange traded funds linked to bitcoin could bolster volume in the digital currency, but U.S. regulators have not approved any such ETFs. Earlier this year, the Securities and Exchange Commission (SEC) told several issuers to scrap plans for bitcoin ETFs.
“Average transaction confirmation times have tumbled — though that may be in part because the technology that underlies Bitcoin has already been adapted to address some of these delays,” reports Bloomberg. “Not everyone agrees that lower volumes signal trouble for Bitcoin. It may be a healthy return to normality and signs that the market is maturing.”
Some media reports also indicate U.S. exchanges could be nearing futures trading on other digital currencies, such as Ripple and Ethereum.
For more information on the cryptocurrency, visit our Bitcoin category.