CEX Volumes Drop, Bitcoin Holdings Touch 5-year Low

Centralized exchanges lose the spotlight as new data shows declines in trading volumes on popular crypto platforms.

Data provided by the crypto analysis firm Sentiment shows that Bitcoin held on exchanges has dropped to 5.84%, the lowest level since December 2017.

Spot and futures trading were reportedly in decline over the last few months as well.

Question of Faith

Specifically, futures trading on Binance, OKX, and Bybit have fallen by 24.1%, 21.7%, and 17.8%, respectively. Crypto.com, the long-established crypto platform, suffered a significant loss, with a 52.8% drop in futures trading.

The decrease in volume indicates the surge of bearish sentiment across major CEXs. It’s highlighted that the volumes on those exchanges entered the extended decline period since November last year – the matched timeline of FTX’s collapse.

The crash of FTX by the end of 2022 resulted in a spike in DEX trading volumes.

Observers noted a similar trend during the crash of TerraUST in mid-2022 when DEX trading volumes also surged. This suggests traders move towards DEXs to mitigate their exposure to single centralized exchanges.

Opportunity For DEXs?

In recent months, investors have been withdrawing their funds from centralized exchanges, causing many to experience record outflows.

Even Binance, the largest cryptocurrency exchange by trading volume, was not immune to this trend. Many traders are looking for alternative trading platforms less prone to centralization errors and turning to decentralized exchanges (DEXs).

DEXs have been showing a bullish trend in trading volumes, with Uniswap and SushiSwap leading the way.

Uniswap, for instance, saw an 86.5% increase in active users on their network, which led to an 86.5% increase in fees generated by the protocol. SushiSwap also experienced growth in daily activity, with a 25% increase and a 10.1% increase in revenue.

However, despite these positive developments, the market cap of DEX tokens has decreased significantly in the past week. The frequency with which they were being traded also fell, as indicated by the decreasing velocity of these tokens.

As investors become more aware of the risks linked with centralized exchanges, they may consider turning towards decentralized exchanges for increased security. The competition between these two exchange types is not just about convenience but also safety.

Broader Shift

The trend towards decentralized exchanges also reflects a broader shift towards a more decentralized financial system. Decentralized finance, or DeFi, has gained traction over the last few years.

DeFi platforms offer a range of financial services that are traditionally provided by banks, such as lending and borrowing, without the need for intermediaries.

Decentralized exchanges are a key component of the DeFi ecosystem. They offer users the ability to trade cryptocurrencies without the need for intermediaries, which can reduce the risk of hacks and other security breaches.

However, decentralized exchanges are still in their early stages of development. They can be more complex to use than centralized exchanges and have less liquidity, which can make it harder to find trading pairs and execute trades.

Despite these challenges, the growth of decentralized exchanges over the last few years has been impressive. The rise of DeFi and the increasing awareness of the risks associated with centralized exchanges will likely continue to drive the growth of decentralized exchanges in the coming years.

While decentralized exchanges offer greater security than centralized exchanges, it’s not a change that happens overnight. This doesn’t necessarily mean that investors will completely abandon centralized exchanges, as they still drive the majority of crypto transactions.

As the crypto market matures, we expect to see a more diverse range of trading platforms emerge. With all the issues over the past 18 months, and the losses, it would not be surprising to see more investors turning to DEXs, and self-ownership of digital assets.