Cryptocurrency Trading Volume: What Is It and Why Does It Matter?

There are as many ways to trade as there are traders and determining whether a specific
investment route is right for you will depend on a wide variety of factors, such as the types of
financial assets that best suit your risk tolerance and revenue expectations, as well as your
market experience and the amount of time you are willing to spend managing your investments.

One asset class that is gaining increasing legitimacy and popularity is cryptocurrency trading,
due to its accessibility, its variety of new and established currencies, its use of powerful
advanced encryption and its high volatility, which presents lucrative trading opportunities.

What is trading volume in cryptocurrency investing?

There are a few major metrics used to evaluate cryptocurrencies and provide an indication of a coin’s trajectory. One such metric is circulating supply, whereby the amount of coins in circulation that are being used and traded can have an impact on price, as it gives some indication of the token’s liquidity. Then, of course, there is market capitalization, which is defined as the circulating supply of a coin multiplied by the current price. Since digital currency developers don’t publish financial statements, market cap is one of the few means of assessing the present value of a digital currency. Another important metric is trading volume, which is frequently used to evaluate the investment potential of an emerging digital currency. The trading volume is the amount of trading activity on a given asset. When it comes to digital currencies, the trading volume is the record of the purchase and sale of each coin. By showing how frequently the currency is changing hands its popularity and value can be ascertained.

One way to look at trading volume is by focusing on a specific crypto exchange, where volume is measured based on the amount of trading in a 24 hour time-frame. Or you can examine general trading volume, which is calculated based on aggregated data from all the exchanges combined. However, keep in mind that a cryptocurrency’s publicly traded volume may not show the whole picture, since private trades made on the Over the Counter (OTC) market could account for a large volume of coin activity. The highest trading volume cryptocurrency exchanges are the ones that offer the best opportunities, because the more overall volume an exchange has, the easier it will be for the investor to trade their chosen coin.

Why is crypto trading volume so critical?

If you want to assess the viability of a specific cryptocurrency, volume is key. While a new coin may be generating a great deal of buzz it may not have any trades, signifying that investors don’t have faith in the project. It is the highest trading volume cryptocurrency that makes for the healthiest investment. High volume generally translates to greater liquidity and stability. A low volume of trading is a red flag for a coin that may be dead in the water and exchanges will commonly delist a currency if it is gaining no traction. On
the other hand, for a promising initiative that looks as though it is going to take off in the near future but still does not have the highest trading volume cryptocurrency traders may wish to get in on the ground floor, investing in the coin before it gains market momentum and the price gets driven skyward.

Look at the trading volume on the various exchanges, when choosing where to trade, as this will impact the prices they offer. Since many exchanges have a specific geographical focus, such as Asia or Europe, tracking volume by exchange could be a valuable tool for identifying where the action is centered for a given coin.

When seeking out the platforms with the highest trading volume cryptocurrency traders should look for a reliable, regulated operation, with a good reputation among the online crypto community. These will experience the most traffic and serve as a hub for people buying and selling coins. It is not only critical for exchanges to have a high trading volume but also any platform that connects to those exchanges to perform trading on your behalf. One example is ArbiSmart, an automated crypto trading platform, through which a vast amount of global cryptocurrencies are being moved. As this creates greater liquidity for the platform, this will translate to higher profitability for the platform user.

How is crypto trading volume evaluated?

When it comes to finding highest trading volume cryptocurrency traders should look for a coin that is experiencing a great deal of activity on a large number of exchanges and not just a handful. You want to be able to see evidence of investor interest across the board. In this way, it is possible to get a clearer and more accurate assessment of a coin’s trading value. Online you will find plenty of free tools that will provide an aggregate of total trading volume and enable you to compare the activity of various cryptocurrencies over a given time-frame.

Basically if a certain price level is being supported and the order book inventory has seen high demand you can expect the coin price to see a hike with increased volume and a surge in new orders. One thing to be careful of however is a cryptocurrency experiencing sharp peaks in trading volume. This may indicated an inflated price where the coin is being over-valued and you want to step away before the price plummets.

When looking for the highest trading volume cryptocurrency investors must learn to understand an order book, which is simply a list of the pending orders being placed on an exchange for a particular coin. One side records the list of pending buy orders, while the other side contains all the pending sell orders. This shows current interest levels and is a good indicator of promising crypto opportunities and equally, the reverse is true. When confidence in a coin falls crypto investors will pull out, decreasing volume and negatively impacting the price. In such cases you may want to cut your losses, or alternatively go short on the asset.

The crypto markets are by nature volatile and this is connected to their high trading volume. The coins that are in highest demand, such as Bitcoin, Ethereum and Ripple, are those that are traded the most and they will commonly have the highest market cap. If a coin is experiencing a high volume of trading over a sustained period that speaks to its popularity and from this you can infer an upward direction for the token, even if it has experienced a price drop. If however, you see a dramatic price spike, coupled with a low volume of trading, you may wish to be wary of investing. Limited volume can be an indicator that the trend won’t last and a correction is imminent.

As we can see, the significance of trading volume in cryptocurrency markets cannot be overestimated. It is an essential metric in the investor’s arsenal, when assessing the viability and sustainability of a given coin and an ongoing examination of volume fluctuations is one of the best ways of assessing the health of your crypto portfolio.