The digital asset industry faced a lot of adversity in 2020. Slapped with the first financial meltdown, the journey through the first quarter of the year was rocky and unstable. However, the collective virtual asset class has performed commendably well in spite of facing a detrimental March.
Now, according to tokenInsight’s recent report, it was suggested that the trading volume exhibited by the crypto spot markets in Q1 2020 was close to a whopping $6 trillion in the market. The rise from the previous quarter was about 104 percent and the confidence level indicated in the trading was decent with 60-70%.
However, the report also highlighted a few of the drawbacks that were witnessed during the 1st quarter.
Bitcoin’s price and market trading volume exhibit low correlation
The impact of high trading volume in the crypto industry should directly translate into a price increase or decrease and it is one of the main traits to identify market change.
Although Bitcoin’s price did register turbulency during the first quarter, the report indicated that the correlation between BTC price and trading volume was extremely low. The correlation was as low as 0.04. For comparison, it was 0.78 in 2019. Additionally, the biggest difference was in correlation was observed before and after the crash of 13th March, as the correlation index pictured a value of 0.6 and -0.21 respectively.
The drastic disparity was largely due to abnormal investor behavior and the larger collapse on the traditional market side had led to a cascading case of liquidity. As the capital dried up in stocks, the sharp drop in sport market prices translated in Bitcoin as well. The report added,
“On the other hand, because the market has been baptized, the overall structure of the digital asset market ’s high leverage has been readjusted under the extreme market shocks, and investors have reduced the chase after the rise. The shock cycle is conducive to the long-term development of the digital asset market.”
The dilemma of the fake trading volume
Another concern raised by the report is the increasing volume of fake trading or wash trading, as they say. As mentioned earlier, the total trading volume of 279 centralized exchanges in this quarter was about $6.47 trillion, and quite a bit of that was a faking trade volume.
While the industry is becoming more transparent over the year, the report suggested that investors should be more mindful of exchanges with a high level of trading volume, but within a short period of development. The report concluded,
“Due to the current regulatory uncertainty of the digital asset market and the characteristics of centralized platforms that are easily manipulated by malicious parties, investors should keep their eyes open, and do not readily believe in the promotion of their websites and some media.”