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What Is Trading Volume In Cryptocurrency?

Updated: Feb 1, 2022

Trading Volume in Cryptocurrency

Volume is the total of the actual trades occurring; meanwhile, liquidity is the whole amount available for trading on any single price. The higher the volume of cryptocurrency transactions, the more liquid the crypto market is.

High volume in crypto allows for easier conversions happening in different cryptocurrencies, fiat money, and all other assets.

What is the importance of volume?

On the operational side, cryptocurrency exchanges require volume to keep their doors all open. Volume is what makes these exchanges money as they all collect transaction fees over trades through their platform, mostly a percentage of the traded value. Without having a certain volume threshold, exchanges will fail to be highly profitable business ventures.

For you being a cryptocurrency investor, exchange volume is just as important as you want liquidity and speed for your trades. More individualized transaction methods, like OTC, might score you lower fees and a lot better rates but are not suitable for everyday trading. Still, the official exchanges give communal areas for the sellers and buyers to meet and make very quick and easy trades that are as close to market value as possible.

A bigger gathering of sellers and buyers pulls the exchange price to equilibrium. In contrast, the poor exchange volume mostly means either slow or inefficient trades since sellers' overall asking prices won't meet potential buyers' bids.

Trading Volume in Cryptocurrency

There are many ways to trade, and knowing whether some investment route is ideal for you will depend on different factors. Are you a HODLer? Swing trader? Scalper? This decision defines the assets that best suit your risk tolerance, abilities and revenue expectations and your market experience, and the total amount of time you are willing to spend over managing your investments. HODLer doesn’t have to concentrate on volume as much since they are mostly long-term bets. Swing traders need volume analysis to best identify areas of confluence for their swing low/high entries. Scalpers and derivative traders rely on volume analysis to pinpoint the exact entry for a smaller but quicker gain.

What is Trading Volume in Cryptocurrency investment?

Some major metrics are used in evaluating cryptocurrencies and hint at the trajectory of the coin. One main metric is circulating supply, whereby several coins in circulation that are being used and traded may impact price, indicating the token's liquidity. Then there is market capitalization that is defined as a circulating supply of the coin multiplied by the current price.

Since the digital currency developers do not publish financial statements, the market cap is one of the few means of assessing the current value of the digital currency. One other important metric is the trading volume, which is mostly used to evaluate the investment potential of the emerging digital currency.

The trading volume is the amount of trading activity on the given asset. When it is the case of digital currencies, the trading volume is a record of the purchase and sale of every coin. By showing how often the currency is changing hands in its popularity and value may be ascertained.

How is crypto trading volume evaluated?

When finding the highest trading volume, cryptocurrency traders must look for a coin experiencing a great deal of activity over many exchanges. You wish to see evidence of investor interest across the board. In such a way, it is also possible to have a clearer and a lot more specific assessment of the coin's trading value.

Online, you will find many free tools that will aggregate total trading volume and allow you to compare the activity of different cryptocurrencies with a given time frame.

If a price level is being supported and an order book inventory has also seen high demand, you might expect the coin price to see a hike with an increased volume. However, one main thing that you need to be careful of is the cryptocurrency experiencing such sharp peaks in the trading volume. This might indicate an inflated price where a coin is overvalued, and you wish to step far from the price plummets.

Volume is an important metric in investors' arsenal when assessing the viability and sustainability of the given coin, and ongoing attestation of volume fluctuations is one of the ideal ways of assessing the health of your crypto portfolio.

The old saying “Price follows volume” is more true now than ever. Volume is the only real leading indicator that can show potential price action in the future.

Can crypto sites fake volume?

There is a report that a college student started helping obscure crypto exchanges fake huge trading volumes. He did this by setting up many accounts on the exchange and constantly using bots to trade between accounts. This goal is to fake as much trading cryptocurrency volume to have shady exchanges on lists tracked by established and followed exchange monitoring websites hence gaining the attention of real crypto investors.


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