Despite Bitcoin’s remarkable gains in recent years, data from Bitstamp indicates that crypto day traders are not flocking back to the market in the numbers one might expect. This article delves into the declining participation of day traders in the cryptocurrency space, the reasons behind their apparent exodus, and the impact on the market.
The Decline in Crypto Day Trading
According to Bitstamp’s data, retail trading volume on their US platform has inched up only slightly, from 33% to 35%, since the start of the year. On a global scale, the growth in retail trading volume is even more modest, with an increase from 8% to 9%. This subdued growth raises the question: where have all the day traders gone?
The Allure of the Past
In conversations with Bloomberg, seasoned traders expressed their waning interest in the crypto market, even as Bitcoin’s price surged by 110% since January. Peter To, a 34-year-old professional stock trader in New York, reminisced about making $1 million trading Bitcoin during its bull runs in 2013 and 2017. However, even with Bitcoin’s recent gains, he remains on the sidelines.
“Bitcoin is not as volatile or as driven as it was,” To observed. “For traders like me who are hunting for inefficiencies in the market, it’s not as interesting. The allure is kind of gone.”
Craig Murray, a 23-year-old trader who reportedly made over $200,000 in crypto, revealed that his decision to step back from the crypto market was catalyzed by the FTX exchange’s collapse in November 2022. Concerns about the exchange’s solvency had spread throughout the industry, prompting Murray to withdraw his assets. He remarked, “That kind of put me over the edge. I just decided it wasn’t worth it. Why would I have my money in this space when there’s a chance that one day it could all go away?”
Signs of a Shifting Landscape
Declining weekend trading activity is another sign that traders have been abandoning the market. Fredrick Collins, CEO and founder of crypto data platform Velo Data, noted that weekends with only half the trading volume compared to weekdays have become more frequent. This is a departure from the past when weekend trading activity was relatively robust.
The Impact on Coinbase
The decline in crypto trading activity isn’t limited to Bitstamp. Coinbase, one of the largest and only publicly traded crypto exchanges, reported a 12% drop in total transaction revenue between the second and third quarters of 2023. The exchange attributed this decline to low market volatility.
It’s important to recognize that the decline in crypto trading isn’t occurring in isolation. Retail investment in equities saw a 40% decline between the beginning of 2021 and the end of 2022, according to JP Morgan Chase and Co. This suggests that risk aversion and shifting market dynamics may be driving traders away from not just the crypto market but also other asset classes.
The dwindling participation of crypto day traders in the market, despite Bitcoin’s impressive gains, suggests that the allure of the past has waned. Experienced traders are finding the market less captivating, and concerns about exchange stability have contributed to a sense of caution. The impact of this shift is evident in trading volumes, market volatility, and even the financial performance of major crypto exchanges like Coinbase. Whether this trend is temporary or indicative of a broader shift in market dynamics remains to be seen, but it highlights the evolving nature of the cryptocurrency trading landscape.