Trading volume on centralised crypto exchanges plummeted 46.2 per cent last year, according to data released by research firm CryptoCompare.
In its review of the performance of centralised exchanges in 2022, the firm reported that spot trading on market leader Binance was down 45.3 per cent to US$5.39 trillion.
CryptoCompare said that the past couple of years had demonstrated the importance of market sentiment on trading activity in the crypto space.
“In 2021, the injection of stimulus checks led to a liquidity-rich bull market where traders took advantage of various trends, resulting in an influx of trading activity,” the firm said.
“However, the poor macroeconomic conditions of 2022 (rising inflation and interest rates) — together with idiosyncratic events within the space — have affected cryptocurrency markets, reverting market participants to safer assets and away from trading.”
The firm noted that, in contrast to the extensive risk-taking seen in the bull market of 2020 and 2021, investors have primarily been fleeing to comparatively safer crypto-assets in recent times, such as Bitcoin and stablecoins, to provide capital protection.
While Bitcoin suffered a 31.4 per cent decline in trading volume compared to a year earlier, it remained the most traded crypto-asset of 2022 with a trading volume of US$3.36 trillion.
“Last year, Bitcoin’s trading dominance increased from 28.8 per cent in January to 48.6 per cent in December, with traders preferring to trade the asset with less downside volatility amid uncertain market conditions,” CryptoCompare added.
“This is a common trend that was seen in previous market downturns.”
The turbulent performance of crypto in 2022, in what is now known as the “crypto winter”, could give way to a “crypto spring” this year, according to one expert.
EToro crypto market analyst Simon Peters recently predicted that inflation peaking will provide a positive tailwind for crypto and could lead to a change in sentiment to buy once again.
“A return to a crypto bull market might also be helped by a Fed pivot and interest rate cuts expected from November 2023, and once interest rates start falling, more liquidity will become available to enter investment markets again,” he stated.
