Bitcoin trading volumes have plunged to their lowest levels this year. This chart shows how steep the drop has been.

A hand holds a bitcoin toward the sky in this photo representation of the cryptocurrency.

Bitcoin’s trading volume has dropped sharply in the past three months, with weekly volatility declining even further this week.

Seven-day volatility has reached 1.68%, down from more than 5% in February 2021. That’s the lowest reading since October 2020 and in line with the levels experienced last summer, according to crypto exchange Luno, citing data from Arcane Research.

The chart below shows trading volumes remain remarkably low, with the weekly average hitting about $US3 ($AU4) billion. That’s down from a seven-day average of about $US16 ($AU22) billion in mid-May. The level is now the same as it was in mid-December 2020.

Tradingvolumes

One reason for this could be money managers de-risking their portfolios due to the recent downward movement of traditional markets, along with macroeconomic concerns about the impacts of COVID-19, said Luno’s UK country manager, Sam Kopelman.

But other experts say the summer doldrums, which are popularly associated with low volumes and poor performance in markets, are to blame for bitcoin-trading volumes nosediving to their lowest level so far this year.

Bitcoin’s price slid below $US30,000 ($AU40,741) at the start of this week, extending its decline after concerns around China’s crypto crackdown deepened and regulatory scrutiny expanded.

“We’re seeing the signs of an undecided market,” Nick Jones, CEO and co-founder of Scottish crypto wallet Zumo, told Insider. “There’s an element of ‘sell in May and go away,’ where the summer holiday months bring a reduction in market participants. And, for retail investors, no doubt some lingering fear after the bitcoin price crashes of April and May.”

Bitcoin is still trading 50% off its peak of above $US64,000 ($AU86,915) in mid-April, at about $US32,390 ($AU43,987) as of Friday.

Jones said the digital asset is now in a natural cool-off period, and trading in a relatively narrow sideways channel, so people are waiting to see which way the wind will blow.

But if rising inflation continues to be paired with rock-bottom interest rates, money will flow out of cash and into other assets, including bitcoin, he said.

Bitcoin’s most recent decline came after stock markets were spooked by fears of the fast-spreading Delta variant. That indicates there could be further knock-on effects on the cryptocurrency if the macro environment continues to be challenged.

The CEO of a blockchain technology provider also suggested that summer is the reason behind low activity in the market.

“Institutions typically slow their activity down in the summer months and the market is counting on institutions to be the marginal buyer in cryptocurrency,” John Sarson, CEO & co-founder of Sarson Funds, told Insider.

That, combined with China and Hong Kong making it difficult for citizens to purchase cryptocurrencies, makes it reasonable to expect lower prices in the short term.

“As institutional investors come back from summer vacations, we expect there to be an increase in demand due to more attractive entry points,” he added.

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