The cryptocurrency world is rising, and you can either join it or stand aside and watch it conquer. It is up to you to decide if it is wise to invest in the crypto world, but it is up to us to explain its components.
This article will find information on the meaning of cryptocurrency volume and its indicators and changes. Crypto is a whole new approach to values in this modern era, and we are ready to explain how to use volume to make the best of it.
Cryptocurrency and Its Meaning
Cryptocurrency is a digital currency that uses encryption to safeguard transactions. It is a digital payment method that does not require transaction verification from banks or the government.
Unlike the real money we use, cryptos exist only as virtual entries in a database online. Cryptos are kept in digital wallets. The name comes from the process of encryption for verifying transactions.
What is Volume in Cryptocurrency?
Let’s look at one of the most often asked cryptocurrency questions nowadays.
In simple words, volume means how much a certain cryptocurrency has traded over a given period. The volume shows market participants the number of units that have been traded in a market.
It measures the number of individual asset units that have changed hands during a certain time frame. You can denominate the trading volume in any asset, for example, stocks, bonds, or cryptocurrencies.
Volume gives the crypto movement and predicts the future demand and price movement. Therefore, trading volume is a significant indicator for determining cryptocurrency profitability in the following period.
Of course, the best bet for selling, buying, or trading cryptocurrencies is the exchange. Crypto exchanges are online digital marketplaces where you buy or sell cryptos within a given price movement.
The exchange is a platform where you are trading cryptocurrency. You can use the exchanges to buy crypto with a regular currency, for instance, the U.S. Dollar, or trade crypto for a different one, such as the Litecoin for a Bitcoin.
The Volume Indicator
The volume indicators are a crucial part of the cryptocurrency technical analysis. What they do is predict the direction of the market. The volume indicators are based on the volume, past prices, and other factors.
Depending on which parameter they indicate (momentum, volume volatility), there are a couple of cryptocurrency indicator types.
The cryptocurrency indicators show how the trading volumes change over time. Each indicator states the current trend’s strength, which is very useful. For instance, if the price movement increases while the volume is high, we are talking about a strong trend that will probably last longer.
Among the most famous volume indicators are On Balance Volume, Accumulation/Distribution Line, Money Flow Index, Ease of Movement, and Chaikin Oscillator.
Trading Volume – Low or High?
Used to assess the investment potential, cryptocurrency volume helps exchanges make money because it charges fees for the cryptocurrency trades offered on the platform. A higher volume of transactions lowers the chances of misleading prices and leads to fair ones.
On the other hand, low volume signifies low trades since the seller prices do not meet the buyers’ bids.
Cryptocurrency volume shows how many times a given coin changes hands in a given period. Investors can analyze the volume by following the trades on a certain crypto exchange or all exchanges together.
The timeframe for measuring is usually 24 hours, and the showing format is a bar chart. When using a trading chart, you choose the Volume indicator from the offered menu. It will be shown as a bar chart at the bottom.
The higher the volume bars are, the greater the volume is. Green bars denote positive price movement, whereas red bars show that the price falls. High trading volume means rising prices, and low volume means falling prices.
Being one of the most significant indicators for technical market analysis, the crypto volume shows the traders’ activity. It represents buying and selling cryptocurrencies for a specific price in a given period.
The transactions include a buyer and a seller. When the two sides agree on a price, the facilitating exchange records the transaction. Both sides are equally important since this data helps calculate the trading volume on the cryptocurrency market.
High Trading Volume
High volume usually goes with much less volatility and higher stability of the prices. In addition, it provides easier conversion among different cryptocurrencies or fiat money.
Therefore, high volumes matter both if you want to bring money from trading fees and if you are an investor looking for an investment with quickly processed trades.
The low volume exchanges make good arbitrage chances but have in mind to ensure that you can withdraw those buyings easily before you buy.
Opportunities like these show up on lower volume exchanges because the demand for the coin is low, and something is not well with the exchange’s operational features.
Therefore, you better not join these exchanges, although this can be a good move if you find the right exchanges with low volume where you can buy Bitcoin or other cryptos at bargain prices.
Crypto volume is close to the liquidity concept, although they are different. On the one hand, the volume shows the actual trades happening, whereas liquidity, on the other hand, shows the available trading amount for any price.
Therefore, the cryptocurrency market will be more liquid if there is a higher cryptocurrency transaction volume.
What Does Significant Volume Refer To?
It is not worth buying something if no one wants to buy it. Consequently, if no one is buying a given cryptocurrency, it is not worth the transaction fees.
It means that crypto exchanges need an increasing volume to increase the future price of crypto. Volume is what gives value to the crypto, and it makes exchanges money.
Exchanges collect transaction fees through a platform, typically a percentage of the traded volume. If there is not enough daily volume, the exchanges will not turn into successful business deals.
The official exchanges have areas for buyers and sellers to meet and trade fast, some easy trades close to the market values.
The exchange price remains balanced when there are many buyers and sellers. However, if there is a poor exchange volume, then there are slow trades because the process of the sellers does not meet the offers of the potential buyers.
If you are willing to sell an asset, you need a high demand, which provides you with a better price. On the other hand, if you are eager to buy a coin, you should probably look at an exchange platform with a higher volume traded for certain pairings.
The total volume of given crypto is directly connected to its volatility. If the same amount is bought and sold by buyers and sellers, the price changes will not be huge but stable. If the price is stable, we can say that people are well informed, which is a good indicator of market efficiency.
The more experienced market participants with reasonable prices and significant volume tend to be less volatile. The market participants are a combination of holders, institutional investors, miners, etc.
It is one of the major metrics for crypto evaluation and indicates the coins’ trajectory. Market capitalization is the coin’s circulating supply multiplied by the current price. As digital developers do not show financial statements, this capitalization is a few ways to assess the current digital currency value.
You can fake the number of units traded in a market. Wash Trading is a tactic used to exchange volumes. What you do here is make the buying and selling orders at approximately the same time. Then, the orders can be canceled, and the markets will not see any material movement. Buyers may be tricked into seeing this as an active market, whereas this is just a fake noise.
Many exchanges do these wash trading practices just to blow up the volume. The exchanges think a higher volume will convince traders to go with their platform. Therefore, the more traders they entice, the more profit they will make.
It is no surprise that volume is seen as the most important crypto metric. Many traders find volume the indicator that they could not live without. The main reason for this is the objectivity of volume, as opposed to other technical indicators, which are not that objective and are based on the ability of an individual to interpret a chart.
To sum this up, if you are interested in cryptocurrency, you must also get familiar with the concept of volume, volume bars, charts, and the term volume indicator. Volume, simply put, shows how much certain crypto has traded over a given time frame.
Volume is a powerful indicator presenting the number of assets that have been traded. Understanding volume and price direction mean understanding cryptocurrency in general, good trades and deals, and how they work. Focusing on volume and going through technical analysis before investing in certain crypto means that you understand the activity in this world and know when to pull a move.