Significance of Billion Dollar Daily Volume in Crypto Currency Markets

Billion Dollar Markets:

When I started trading ETH I remember looking at the volume and being amazed that it could reach 50, 60 and 80 million dollars regularly. A large influx of volume was usually a good bullish trigger for a long trade in those day. These days ETH regularly reaches $1-2 billion dollars in volume and surpasses BTC on a regular basis. To get an idea of how large these volumes are let’s compare them to traditional financial assets, like stocks.

Recently it was announced that Amazon might buy Whole Foods. This brought an influx of volume into Whole Foods and their competitor Kroger.

The volume is the number of shares being traded. If we multiply the number of shares by the price per share we get the dollar value of the volume in that stock. So with the big new, Whole foods volume would be:

107.7 million x $42 = $4.4 billion.

This is much higher volume that this stock would regularly see but because of the new, there is a lot interest in it.

Lets look at some other highly traded stocks.

Apple is trading 27 million shares at around $143 which about $3.8 billion in daily volume.
General electric is trading 30 million shares at around $28 amounting to $840 million in daily volume.

So the fact that Bitcoin and Ethereum are consistently achieving volumes of $1-2 billion dollars is very significant.

Why is volume important in markets? Imagine that you are at an auction for hats. At this auction ther3 3 people. The first person bids $1 for the hat, the second bids $2. The third person has another place to be, and really wants the hat so he bids $250 for the hat. Now is that hat really worth $250? No. But because of the low trading volume at the auction, the price was driven up. Investors would not consider this rise significant. This was very common in the early days of cryptos. Novice traders would rave about xyz crypto being up 90%. “To the moon” they would say and foolishly put their money into the coin. Moments later they stared at their screen in shock and disappointment wondering how they could lose 50% of their btc so fast. A keener sense of reason might have motivated them to check the volume and see its $500 and any one person could be manipulating it.

In the above example, we see that only around $7k worth of GAM is being traded. Any of the above market prices could be moved with just a few bitcoins.

Volume is important in measuring trend and momentum of a given asset. Many times, higher than average volume could signal a reversal. The strength of any movement is measured partly by volume.

This tells us that the recent moves up in BTC and ETH are very significant as they were very high volume moves up. Volume is not always buy volume, but when demand exceeds supply, and price rises, then we are dealing with buy volume.

As crypto currency market caps and volumes begin to creep into the range of traditional financial assets many more people and businesses will consider them alternative investments. Since many of these cryptos offer solutions to real world problems we could see them added to many portfolios. More traders and market makers will also turn their attention to crypto markets as these volumes are impossible to ignore. We can expect Bitcoin and Ethereum to continue to increase in daily volume as blockchain technology gains more and more acceptance in both financial and technology sectors.

@fractalbounce