Crypto volume is a crucial metric in the world of cryptocurrencies, as it gives an idea of the level of activity of buyers and sellers of a particular crypto asset. It refers to the amount of a cryptocurrency traded within a specific period, which could be for a particular crypto asset or the total traded amount of all cryptocurrencies. In most cases, the 2-hour volume time frame is used as the standard measurement for crypto volume.
Cryptocurrency traders rely on the volume of a crypto asset as an indicator based on the fact that it reveals what is going on in the market. A trader is interested in how many people buy or sell a cryptocurrency at a particular time. With the information retrieved, the trader can make informed decisions like knowing when to enter the market or exit it.
The volume of a crypto asset reveals a lot. For example, a low trade volume shows that the activity in the market of a crypto asset is passive. This means that people are not actively trading the asset. On the other hand, a high trade volume signifies that buyers and sellers are active in the market.
When the buying volume is high, this could also signify a bullish trend. It means that there are a lot of buyers in the market, which usually drives up the price of such crypto assets. Also, when the selling volume is high, a lot of traders are selling off a particular cryptocurrency which in turn leads to a downturn in the price of the cryptocurrency.
Using Crypto Volume to Predict Market Bias
Consider an example of a trader who wants to sell 2 BTC at $50,000 each. When the transaction is completed, it will be recorded as part of the Bitcoin volume at the time of sale. This means that $100,000 will be added to Bitcoin’s volume after the transaction. This also applies to other traders as well. Traders can use these records to make informed decisions.
The volume of a particular cryptocurrency tells the viability of the market of such cryptocurrency. For example, in a situation where the volume is relatively high, but the crypto asset’s value is either moving downward or upward, the market trend is usually considered viable. And when the volume is relatively low, traders consult other indicators to make informed decisions.
Experienced traders don’t depend on the volume alone to make trading decisions. They also rely on other indicators that support the analysis of the particular cryptocurrency they are trading.
Certain conditions usually influence the trading volume of a particular cryptocurrency. The most common condition is how popular the crypto asset is. Because of its popularity, Bitcoin boasts the largest trade volume in the crypto market. Other conditions include trends. That is, what cryptocurrency is trending at the moment? Campaigns and news influence trends. Once in a while, a few crypto assets don’t follow suit when the major market is in a downturn. Assets like this attract a high trade volume during that period. A savvy crypto investor can jump on to recoup their losses.