- Historical 90-day volatility fell to a multi-year low in September.
- The woes of the world’s largest crypto trading platform Binance continued in the third quarter.
The third quarter of 2023 extended the era of low volatility in the crypto market that started in the final months of the second quarter. Apart from periodic periods, the sector failed to show sustained price movements in either direction, frustrating both bulls and bears in the market.
Crypto market in hibernation
According to a quarterly report published by crypto market data provider Kaiko, 90-day historical volatility fell to a multi-year low in September. In fact, the two largest assets in the sector are Bitcoin [BTC] and ether [ETH]recorded less volatility than the oil market.
Source: Kaiko
As has been seen over the years, most traders have been attracted to cryptocurrencies due to their high volatility. After all, they took advantage of the rapid price fluctuations to flip coins for quick profits.
However, as prices were limited to tight trading margins, active traders significantly limited their market participation. Bitcoin spot volume averaged $6 billion in the third quarter, up from $7 billion in Q2 and $13 billion in Q1, data showed.
Interestingly, even major legal victories such as the Grayscale verdict in August failed to bring about a decisive turnaround in the market.
Source: Kaiko
Optimism about spot ETFs failed to activate the market
Most of the excitement around the market in the third quarter was rooted in the expected approval of several Bitcoin Exchange Traded Funds (ETF). If the US Securities and Exchange Commission (SEC) gives the green light, these financial instruments would provide an easier way to gain exposure to crypto assets.
Remarkable, Ark Invest and 21Shares were the early movers when it came to filing a spot Bitcoin ETF. The pair previously submitted the application in April, followed in June by a flood of applications from other TradFi titans such as BlackRock.
However, the third quarter was synonymous with delays and uncertainty surrounding spot ETFs. Recently, the SEC postponed a decision on proposed Ark and 21 Shares ETFs for the third time in a row.
The SEC has up to 240 days from the date of filing to approve or deny an ETF. This meant that the regulator would postpone its judgment until at least January 2024.
Kaiko noted that “ETF enthusiasm proved short-lived and failed to provide a significant catalyst” for the market in general and Bitcoin in particular.
Binance is going deeper into misery
The world’s largest crypto trading platform’s woes continued in the third quarter. Unrelenting regulatory pressure forced the crypto giant to close its stores in Germany and Russia, even as the company fought a lawsuit in the US.
Note that Binance had withdrawn from other major markets such as the UK and Australia earlier this year. As a result, Binance’s spot market share fell further in the third quarter, from 69% at the beginning of the year to 46% at the end of September.
Source: Kaiko
However, despite the decline in market share, Binance, along with a few other major players, was responsible for the majority of the market’s trading activity.
According to the report, liquidity in the market became more concentrated. Just eight trading platforms were responsible for 90% of the global market depth and trading volumes. In fact, Binance alone was responsible for more than 30% of the market liquidity.
Highly concentrated markets ensured that liquidity was not evenly distributed across the stock exchanges. The fundamental problem with this asymmetry was that the collapse of one entity had the potential to drag down the entire market.
The collapse of the FTX stock market last fall serves as the prime example that can be used to support this argument.
Source: Kaiko
The case of XRP and other alts
One of the highlights of the past quarter was the ruling on the hotly contested legal battle between the SEC and Ripple Labs [XRP].
The court’s verdict acquitting Ripple of wrongdoing in the sale of XRP tokens to individual investors resulted in a short but intense period of trading activity. XRP even temporarily eclipsed the market share of BTC and ETH.
Source: Kaiko
However, once the euphoria passed, XRP’s gains were reversed and transaction volumes fell over the next two months.
Moreover, expectations of an XRP-induced market-wide altcoin rally have not materialized. The average daily trading volume of the top 30 altcoins was $5 billion in the third quarter, compared to $6 billion in the second quarter and $7 billion in the first quarter.
Source: Kaiko