The acceptance and trading activity in cryptocurrencies cannot be stopped. Trading activity in ETFs, futures contracts and standard cash trades have exploded and continue to gain traction. In comparison, 24-hour trading volume is down from the peaks seen in the spring of 2021, trading volumes in October and November up significantly year over year. The increasing importance of the products used to speculate on the direction of cryptocurrencies shows that interest in this alternative is rising.
Cryptocurrency Volume Peaks
Crypto trading had several peaks and valleys during 2021. In total, volumes during the year were up compared to the trading volumes experienced in 2020. According to Statista, the global trading volumes of cryptocurrencies were higher at the beginning of 2021 than in September and October. No individual month saw more trading volume than May. The all-time high in trading 24-hour spot trading volume was on May 19, 2021. This date experienced a record high of over 500 billion U.S. dollars. Most of the gains were due to speculation around Dogecoin. The rise in trading volume was followed by a sharp decline as China banned crypto services.
Ethereum Volume Rises With Market Capitalization
Ethereum is attempting to break out to all-time highs, and its gains are coming in tandem with higher trading activity. The currency volume of nearly 29 billion is almost 50% higher than the 3-month average volume of 24-hour spot trading on the second-largest cryptocurrency by market capitalization. This run-up in trading volume compares to Bitcoin, where the current spot 24-hour trading volume is equal to the 3-month average of the trading volume. The market capitalization of Ethereum is 555.5 as of early December 2021, making Ethereum the second-largest market capitalization of all the cryptocurrencies traded.
Futures Contracts are Experiencing More Activity
The introduction of the micro Bitcoin futures contracts has assisted in adding to cryptocurrency trading volume. Bitcoin mini futures trading contract volume surged higher at the beginning of November and then stabilized during the month’s balance. The Bitcoin micro futures contract is 0.1 bitcoin compared to the specification of the Bitcoin futures contract, which is equal to 5-bitcoin. The micro futures contract is financially settled. The average volume of the micro futures contract during November 2021 hit a high of nearly 45,000 contracts and had open interest above 65,000 contracts. These figures compared to the Bitcoin futures contract listed on the Chicago Mercantile Exchange (CME) that average approximately 20,000 contracts and had an open interest average during November of 14,000 contracts.
First Bitcoin ETF in the United States, Added Activity
In October 2021, VanEck launched the first Bitcoin ETF, which helped bring acceptance to the cryptocurrency asset class. The ETF was approved in October by the U.S. Securities and Exchange Commission. The issue for crypto traders is that the new VanEck Bitcoin Strategy ETF tracks the movements of Bitcoin by monitoring the actions of the Bitcoin futures contracts that are accessible on the CME. This ETF cannot hold any digital coins through a wallet with an address. Instead, it can only have Bitcoin futures contracts. According to the investment description of the ETF, the fund does not hold any digital assets directly. Despite these drawbacks, the ETF has brought the opportunity for many institutional investors who could not invest in products listed on futures exchanges or OTC exchanges like the Grayscale Bitcoin Investment Trust.
Is Crypto an Asset or a Currency?
It appears that more people see cryptocurrency as an asset that can store wealth than a currency as of late 2021. The introduction of futures contracts, digital wallets, and ETFs shows that the United States has welcomed cryptocurrencies as an asset class. Some countries like El Salvador have introduced Bitcoin as the official currency of the country. In China, Bitcoin mining no longer exists as the government has cracked down on the use of Bitcoin as a currency or an investment asset. While there is some evidence that Chinese Bitcoin miners have relocated to different regions outside the reach of the Chinese government, the upshot is that the Chinese government does not want to advocate Bitcoin as a currency or an asset. The Chinese government believes that approximately 10% of the crypto trading in China before the ban is still working in China.
The Bottom Line
The upshot is that crypto trading activity is accelerating, but some pockets of the globe have yet to embrace cryptocurrencies. The introduction of futures contracts and exchange-traded funds shows that Bitcoin and cryptocurrencies represent a new store of value viewed as an asset class. Volumes have accelerated, which shows that more cryptocurrencies are changing hands. On December 6, 2021, the CME is expected to launch a micro Ether, further increasing the acceptance of crypto trading. This new futures contract will open the door for an Ether ETF based on the futures contract’s movements. The increased acceptance shows that cryptocurrencies cannot be stopped!