Bitcoin Spot Trading Volumes Remain Low A Threat to the BTC Bull Market Thesis?

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Bitcoin. Source: Adobe

After hitting their highest levels last month since the aftermath of the collapse of cryptocurrency exchange FTX last November thanks to significant volatility and no trading fees on BTC pairs on Binance, spot bitcoin trading volumes have dropped significantly.

According to data pulled from CoinGecko’s API, spot Bitcoin trading volumes on major exchanges were around $16.4 billion as of Friday.

That compares to nearly $70 billion this time last month.

And it’s not just spot volumes that have weakened recently.

According to data presented by crypto analyst website The Block, as of mid-April, Bitcoin futures trading volume has only reached around $350 billion since the beginning of the month.

For the whole month of March, Bitcoin futures trading volumes were around $1.3 trillion.

Options trading volumes also follow a weaker month, according to another chart presented by The Block.

Lower volumes a threat to the bull market thesis?

Some might interpret lower trading volumes as a sign of slowing demand for Bitcoin.

While it is true that past trading volume spikes have coincided with price spikes, such as for Bitcoin in the first half of 2021, the relationship between higher volumes and higher prices is weak.

This is confirmed by the fact that Bitcoin has been able to continue to rise in recent weeks, despite the decline in transaction volumes.

Indeed, the price of BTC rose above $31,000 for the first time since June last Friday, taking its gains for the month to around 7.0% – a month that saw volumes drop significantly from March.

For now, while a spike in trading volume would be welcome (if driven by an influx of new bitcoin demand), the price of BTC may well continue to rise.

This is because Bitcoin has a lot of very large tailwinds right now.

Bitcoin should continue to benefit from technical, macro and on-chain tailwinds

Chart analysis suggests that the continued rise in Bitcoin price remains a distinct probability.

Since reaching north of last month’s highs in the middle of $29,000, the door is now open for BTC to hit the next major resistance zone around $32,300 (the highs of late May/June 2022) .

All major BTC moving averages are rising in consecutive order and the 21-day moving average has recently offered strong support, a vote of confidence in Bitcoin’s short-term momentum.

Other longer-term technical signals from the major moving averages are also positive.

Bitcoin’s strong rebound in mid-March from a retest of the 200DMA (and realized price) just below $20,000 was interpreted by many as confirmation of the bull market at the time and continues to offer favorable winds.

Additionally, the golden cross that BTC price enjoyed in early February—historically a very bullish signal for BTC—is another longer-term technical tailwind for price action.

Bitcoin’s 14-day Relative Strength Index (RSI) is flirting with being in overbought territory, suggesting that the risk of short-term profit-taking is on the rise.

But that still doesn’t stop BTC from continuing on a decent run of short-term gains, with the recent price rally from mid-January to February being a good example.

The positive on-chain trends also indicate that Bitcoin’s medium to long-term trading bias will remain firmly on the upside.

First, the main on-chain metrics relating to network usage (which therefore acts as a “demand” proxy for the Bitcoin network).

Metrics such as the number of daily active addresses, the number of addresses with a non-zero balance, the number of new addresses, and the number of daily transactions all continue to rise, according to data presented by the crypto analytics firm Glassnode.

Meanwhile, other on-chain metrics, such as those monitored in Glassnode’s “Bitcoin Bear Recovery” dashboard, are all screaming bull market.

This dashboard tracks eight metrics to determine if Bitcoin is trading above key pricing patterns, whether or not network utilization momentum is increasing, market profitability is returning, and the balance of Bitcoin-denominated wealth in USD favors long-term HODLers.

All eight indicators have now been flashing green more or less in unison since mid-March, the longest such period in just over two years.

Historically, when all indicators on the dashboard turn green (i.e. right now) has been a great long-term buying opportunity.

If the US economy is heading into recession and deflation and a cycle of Fed interest rate cuts arrives, the macroeconomic conditions are certainly there for a continued bull market in Bitcoin.

Not to mention a widely anticipated continued global adoption of Bitcoin (and crypto more generally), which is really the main long-term bullish argument.

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