By almost any measure, crypto fatigue has settled in. Prices have flatlined, trading volume has collapsed, and hardly anyone outside the industry seems to care about crypto anymore. Google searches for Bitcoin are off 87% from their peak in 2021. Searches for “cryptocurrency” are down 96%.
Crypto trading “has been as boring as watching paint dry,” says Dave Weisberger, head of crypto trading platform CoinRoutes.
The slumber has a few explanations, one being a new tech toy—AI—stealing crypto’s thunder. Companies like
BlackRock
(ticker: BLK),
Coinbase Global
(COIN), and Fidelity Investments are forging ahead, and there is great hope that a Bitcoin exchange-traded fund will soon be approved, sparking excitement. But it may take much more than an ETF to re-energize Bitcoin and the broader crypto economy.
One way to see how crypto has gone quiet is trading volumes. Centralized exchanges like Coinbase and Binance are handling around $30 billion a day, less than half their levels a year ago and about 15% of the roughly $200 billion in daily volume when Bitcoin was flying high in 2021, according to CoinMarketCap.
Bitcoin accounts for the vast majority of trading, and since it hasn’t budged much in months, it has depressed exchange volumes. While the token is up 57% this year, it has been stuck in a narrow band from $25,000 to $30,000 since mid-March. “When prices are not moving, a lot of people lose interest,” says Tal Cohen, U.S. managing director of crypto exchange Kraken.
Without as much volatility on which to make money, traders appear to have moved on. Some volatility measures “are the lowest we’ve ever seen,” Weisberger says, leading retail investors to the next “bright, shiny toy.” Areas that may be benefiting include stock options, where retail volumes have surged. AI-related stocks like
Nvidia
(NVDA) are luring investors, along with “disruptive tech” ETFs, gaining a net $335 million in assets in the last 12 months, according to VettaFi, a financial research and data firm.
The waning volume is causing knock-on effects. Market makers that supply liquidity and often trade against retail investors are stepping back. Jane Street and Jump Crypto, two of the largest market makers, have curtailed activity in the U.S., according to people who do business with the firms. Neither company responded to requests for comment.
GSR Markets, a pioneering crypto market maker, has also scaled back in the U.S., laying off staff and focusing more on foreign exchanges. The company has decided to “shift our focus and recalibrate our capacity for different market regimes,” said GSR President Rich Rosenblum in a statement, adding he still thinks the future for crypto is “very bright.”
Low volumes could impact investors by widening price discrepancies on trades. Evgeny Gaevoy, CEO of market maker Wintermute, said his firm has noticed much less “depth” in exchanges’ order books, meaning that large buy or sell orders can have an outsize impact on prices, even for the most heavily traded tokens like Bitcoin and
Ether.
The cost of large block trades has risen faster than that of small amounts, according to CoinRoutes’ Weisberger. But retail traders could start to notice higher costs too.
PayPal Holdings
’ (PYPL) Venmo service, which offers crypto trading, plans to double spreads to 1%, starting October 23, a move that’s tantamount to a fee increase of 0.5 percentage points.
Crypto software development is still going strong, but it’s become harder to get funding as Silicon Valley financiers lose interest. Venture capital funding for crypto companies fell 71%, to $2.3 billion, from the second-quarter periods of 2022 to 2023, according to PitchBook. That was about 12% of the funding for AI and machine learning startups, which hauled in $19.4 billion, down 5% year over year.
The VC shuffle may reflect the fact that crypto has yet to establish itself as mainstream technology, while ChatGPT and other AI apps are on their way.
With ChatGPT, “you saw an immediate use-case. There’s a little bit of ‘Why don’t we have that in crypto?’ ” says Christopher Jensen, head of digital assets research at
Franklin Resources
(BEN), which is trying to launch a Bitcoin ETF and has other crypto ventures in the pipeline.
None of this bodes well for exchanges like Coinbase. Trading volume at Coinbase fell 37% between the first and second quarters. The firm made up for it partly with fees—transaction revenue only fell 13% in the second quarter—but Chief Financial Officer Alesia Haas said at a conference in September that the company expects fees to drop as competition for traders increases. “When volatility is low, like we see today, people just sit and hold,” she said.
At
Robinhood Markets
(HOOD), crypto trading volume in August was down 58% versus a year ago. Revenue from crypto transactions fell 47%, to $31 million, between the second quarters of 2022 and 2023. Crypto general manager Johann Kerbrat says the firm is highlighting its low fees and grabbing market share as it waits for the cycle to turn.
A few events on the horizon could rekindle crypto. One would be approval of a spot-based Bitcoin ETF, says Digital Asset Research CEO Doug Schwenk. A federal court last month ruled against the Securities and Exchange Commission, saying it erred in rejecting Grayscale’s bid to convert the
Grayscale Bitcoin Trust
(GBTC) into an ETF. Some analysts believe the agency could lay the groundwork for an ETF as soon as October by indicating that it won’t appeal the Grayscale ruling, for instance, or by approving rule changes that would pave the way for an ETF.
Another catalyst might be a Bitcoin “halving event” next April. Issuance of new Bitcoin tokens will be reduced by half for every block of transactions approved by the network, going from 6.25 coins to 3.125, according to Bitcoin’s governing software. Lower supply could push up prices and demand could get a lift, based on strong retail interest around prior halving events, says Schwenk. That would help exchanges like Coinbase and Robinhood.
Still, there are hurdles ahead. The SEC could delay approval of a Bitcoin ETF and escalate its fight against Coinbase and others in the industry. Sam Bankman-Fried, accused of the biggest fraud in crypto history, will soon go on trial. (He has pleaded not guilty.) The trial will put crypto back in the news for all the wrong reasons. As the liquidation of FTX drags on, Bitcoin and other tokens could trickle onto the market, pushing up supply and pressuring prices if demand doesn’t materialize.
“If I were cynical, I’d say part of the story line is the death of crypto,” Schwenk said. “The market needs the retail side of crypto to come back.” If it doesn’t, Bitcoin may take a very long nap.
Corrections & amplifications: Jump Crypto has curtailed activity in the U.S. A previous version of this article incorrectly called them Jump Capital.
Write to Joe Light at [email protected]
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