OREGON – The crypto market, on top of everything else, has another problem on its hands: Trading activity is in the gutter.

In 2022, trading volume on centralised exchanges such as Coinbase, Kraken and Binance plunged more than 46 per cent, according to data compiled by CryptoCompare.

On Binance, which remains the leader in terms of market share, spot trading fell 45 per cent to US$5.4 trillion (S$7.2 trillion). And Bitcoin, the most-traded digital asset, saw trading volumes decline 31 per cent year on year, the researcher said in a report.

Meanwhile, a “Liquid Tradeable BTC” proxy tracked by Arcane Research has slid to June 2020 lows, and exchange balances have fallen to 12 per cent, thanks to a rise in self-custody, Arcane analysts said in a report.

This, they say, has direct implications for Bitcoin liquidity because fewer coins available to trade can mean more volatility.

FRNT Financial head of data and analytics Strahinja Savic said: “We are seeing some pretty spectacular declines in spot activity.”

In the holiday-shortened week to start the year, Bitcoin remained in the narrow range of either side of US$17,000 that it has mostly lingered in since the end of November.

Cryptocurrencies slumped in 2022 amid a number of big implosions for important projects such as the Terra stablecoin ecosystem and the FTX empire.

Bitcoin tumbled 64 per cent, its second-worst annual performance in its 14-year history. The plunge in token prices has scared away many retail investors who had flooded into the market during the earlier part of the pandemic, when lockdowns were still in force.

In addition, many institutional investors have been alarmed by the scandals that have left the industry reeling and likely looking at a long time to recovery.

The lack of trading volumes is another indicator that institutions have abandoned the asset class for now – and it could take a while before they once again regain confidence in the market, according to Miller Tabak + Co chief market strategist Matt Maley.

“This is especially true in a bear market,” he said. “Their customers are much less forgiving when they see big losses in a risky asset class during a general bear market for risk assets.”

The money managers who avoided the many ups and downs of crypto may be feeling relieved for having done so, according to Mr Jared Gross, head of institutional portfolio strategy at JPMorgan Asset Management.

“As an asset class, crypto is effectively non-existent for most large institutional investors,” he said.

The crypto industry is still wobbling following the fallout of the FTX empire, and market watchers are wary of more adverse developments around other major participants. Broker Genesis has laid off roughly 30 per cent of its workforce in recent days, another signal of how much the industry is being shaken by recent events.

Digital asset entrepreneur Justin Sun transferred about US$100 million worth of stablecoins on Friday to his crypto exchange, Huobi Global, which has been hit by a wave of withdrawals.

The transactions came amid elevated pressure on Singapore-based Huobi, which saw about US$85 million of crypto outflows over a 24-hour period, according to data from Coinglass.

The exchange said on Friday that it plans to fire about 20 per cent of its workforce and will maintain a “very lean team” as a slump in crypto markets enters its second year.

While exchanges such as Huobi are mostly retail-driven, institutional interest is more relevant for trading activity, especially in the early part of the next upswing, said Ms Noelle Acheson, author of the Crypto Is Macro Now newsletter.

“They generally account for the bulk of trading and have different risk profiles,” she said. “Retail tends to come in with size later in the cycle, nearer the top.”

She added that there are some “brave and high-conviction” retail investors entering the market right now, “but we are a ways off from seeing a wave”.

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