Binance, the largest cryptocurrency exchange by daily trading volume, saw a 15% drop in liquidity from January 2022.
February turned out to be a tough month for the entire crypto finance space and for cryptocurrency exchanges in particular. Binance saw around $1.08 trillion in trading volume in the second month of 2022, according to Be[In]Cryptographic research.
While this number may look great at first glance, Binance’s total volume for February was down $192.4 billion from January’s total trading volume of $1.27 trillion.
Binance volume continues to decline from 2021
The decrease in volume over the past month could have effects on Binance’s position as the largest cryptocurrency exchange based on 24-hour volume accumulation. Indeed, centralized exchanges such as Hotcoin Global, Mandala Exchange, CoinFLEX, OKX, HitBTC, TOKENCAN, Deepcoin, Upbit, IndoEx, and Coinbase are hot on their heels.
Binance saw a 22% year-over-year decline for February 2022. Total trade volume for February 2021 was $1.38 trillion.
Binance recorded a record monthly volume of $3.11 trillion in May 2021 and closed the last month of the year with a total trading volume of $1.44 trillion. February 2022 volume was down 65% and 25% from May and December 2021 respectively.
Negative Crypto Market Sentiment
For the sake of understanding, consider the two largest digital assets as a thesis that best explains the drop in volume.
When Binance reached its all-time high volume level in May 2021, there was overwhelmingly positive sentiment in the crypto market. Ethereum crossed $4,000 for the first time that month and Bitcoin was trading above $50,000.
At the time, the minimum daily transaction volume recorded by Ethereum (ETH) was $25 billion and the maximum daily transaction volume was $84 billion. The minimum trading volume for Bitcoin (BTC) was $31 billion and the maximum hovered around $135 billion.
Due to the buzz around the crypto finance space, millions of sophisticated (highly knowledgeable) and unsophisticated (make decisions without the support of fundamental and technical analysis) traders have poured billions of dollars into BTC, ETH and other altcoins on Binance.
Ahead of all-time highs in May, the minimum volume recorded for Bitcoin in February 2021 was $45 billion and the maximum was $350 billion. The minimum volume recorded for Bitcoin in February 2022 was $13 billion and the maximum was $47 billion, a decrease of 71% from the 2022 low and 86% from the 2022 high.
The minimum volume recorded for Ethereum in February 2021 was $20 billion and the maximum was $48 billion. The minimum volume recorded for Ethereum in February 2022 was $9 billion and the maximum was $29 billion, a 55% decrease from the 2022 minimum and a 39% decrease from the 2022 maximum.
February 2021 was an exciting time for the crypto finance space. Ethereum broke above $2,000 for the first time and eventually settled at an intraday high of $2,036.29 on February 20. Bitcoin also broke above $50,000 for the first time on February 16 and eventually hit a high of $58,330.57 on February 21.
Some of the most popular trading pairs on Binance in February 2021 were ETH/USD and BTC/USD. With around 1,624 trading pairs on Binance in February 2022, the most popular were ETH/USDT and BTC/USDT.
Increase in the number of exchanges
According to be[In]Crypto Research, there are over 450 cryptocurrency exchanges as of March 2022. Over 25 of these exchanges have at least $1 billion in daily volume. On top of that, they keep adding support for new assets and trading pairs.
Binance continues to thrive thanks to the level of sophistication of its trading platform and a relatively smooth verification process to retain customers. Indeed, most exchanges support the same pairs as Binance on their own platform as well as products such as staking which generate decent annual percentage returns.
With hundreds of exchanges available, it should be easy for a customer with know-your-customer (KYC) issues to switch from Binance to a multitude of other exchanges.
To date, Binance continues to face regulatory issues. In 2021, the exchange was banned by the Financial Conduct Authority (FCA) in the UK and roadblocks in Canada as well, after allegations of scams and the use of privacy coins to launder money.
Should Binance overcome its regulatory issues, the exchange could see a huge influx of liquidity that could potentially bring its volume back to the highs of May 2021.
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