Crypto trading volume in the United States has plummeted by over 80% in less than three weeks, according to data from crypto research firm Kaiko. The sharp drop in volumes has occurred since mid-March, which was a period when US trading volumes peaked to four-month highs due to the intensifying banking crisis and the shift from traditional finance to cryptocurrencies. However, since then, traders have pulled back. On March 14, US exchanges recorded $3.2 billion in trading volume, while on April 2, they facilitated just $621.8 million in crypto trades.
Coinbase is currently maintaining the highest US trading volumes with almost 50% of the market share, but it is far from where it was before. During the first quarter of 2023, Coinbase’s market share fell from an average of 60% a week to just 49% weekly. Binance.US has taken over some of Coinbase’s losses, even amid the recent lawsuit filed against it by the US Commodity Futures Trading Commission (CFTC). Binance.US’s market share has tripled from 8% to more than 24%.
However, this shift in trading patterns cannot solely be attributed to Binance’s lawsuit. US exchanges have faced liquidity challenges with the loss of banks Silvergate and Signature, which has made it more difficult to deploy capital over the weekend, as reflected in recent volume data.
The CFTC sued Binance on March 27, and since then, volumes on the foreign exchange have dropped dramatically, with Binance losing 16% of its global market share in the first quarter of the year. According to Kaiko analysts, more time is needed to observe the long-term trend, as the lawsuit is a recent event, and the sharp drop in volumes happened over the weekend.
The highs seen in US trading volumes in March remain a departure from the peaks seen in late 2022. In November 2022, after FTX’s collapse, US volumes spiked to more than $1 trillion as investors scrambled to pull assets off exchanges. On November 12, 2022, the day after FTX filed for bankruptcy, US exchanges saw around $1.3 trillion in trading volume. By mid-December 2022, volumes fell back to around $586 million.
Centralized exchanges are not the only ones to have seen changes in trading patterns. Decentralized crypto exchanges have also experienced a surge in mid-March. Uniswap facilitated more than $13 billion in trading volume, while Curve facilitated close to $8 billion in trades on March 11, 2023, according to data from Blockworks Research.
The US government’s policies and regulatory environment have hurt its chances of becoming a top player in the crypto space. For instance, the Internal Revenue Service (IRS) requires traders to pay taxes on any cryptocurrency they trade, making it difficult for them to calculate their tax liabilities. This discourages potential investors from entering the market. In addition, regulatory uncertainty in the country makes it difficult for exchanges to operate, forcing them to move to friendlier jurisdictions.
In conclusion, the recent sharp drop in US crypto trading volumes is not only attributable to Binance’s lawsuit but also to the loss of liquidity caused by the banking crisis and the shift in trading patterns towards decentralized exchanges. However, the US government’s policies and regulatory environment have also played a significant role in hampering its chances of becoming a top player in the crypto space.
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