Crypto markets are recovering in value, but the trading activity behind that recovery remains weak, creating concerns about whether liquidity can catch up with prices.
Goldman Sachs said in an August 24 report that crypto trading volume fell 30% in July and another 21% in August, extending the decline to 10 consecutive months. Trading volume is now 75% below its peak, making the current downturn longer than the median decline seen across the previous five cycles.
Meanwhile, crypto market capitalization rebounded 21% over the past week, rising to about $2.7 trillion, according to CoinGecko.
Goldman said the difference could mean an inflection point if the valuations remain at the current levels, adding that it is cautiously optimistic on the sector in the second half of the year, with valuations around the 30th percentile of their five-year range.
What Falling Volume Means for Crypto Liquidity
The gap is also showing up in liquidity, with weaker trading activity coinciding with thinner order books across major crypto markets.
Coinbase Research found that derivatives open interest recovered in July even as spot and perpetual futures volumes declined, suggesting risk was returning to trading books without a corresponding increase in turnover. The report also found that BTC and ETH order books remained ask-heavy, with bid-side liquidity weakening.
When there are few bids available near the current price, large orders can sweep through multiple levels of the order book. This would therefore increase their price impact and leave the market more vulnerable to sharp moves.
Centralized exchange volume, meanwhile, has started to recover, doubling over five days last week to around $37 billion after hitting a yearly low, according to The Block. But the recovery remains too small to offset the larger fall in activity.
At the same time, decentralized perpetual exchanges are taking a larger share of derivatives activity, spreading liquidity across more venues. This gives traders more places to execute but can also split liquidity across order books, making execution more dependent on the venue and asset, particularly in smaller tokens and perpetual markets, while BTC and ETH remain deeper on major centralized exchanges.
The combination leaves crypto with a market-cap recovery that has not yet been matched by a comparable uptrend in trading activity or liquidity.
What Could Bring Trading Activity Back?
Regulatory uncertainty remains a major roadblock, with Goldman saying in its report that 35% of institutional investors view regulatory uncertainty as their biggest obstacle to greater crypto participation, while 32% see clarity as the main catalyst.
The SEC recently proposed its Regulation Crypto Assets framework, which includes exemptions from securities registration requirements for certain investment contracts involving crypto assets. One proposal would also cover offerings of up to $5 million over four years, while another would allow up to $75 million in 12 months. The proposal also has a conditional safe harbor for certain crypto assets.
Banking access is also changing, with OCC Comptroller Jonathan Gould saying the agency received 40 applications for new bank charters over roughly the previous 18 months, with 23 involving some form of digital-asset activity. Gould added that this represented an eightfold increase from the previous four years.
More regulatory clarity and access to banking infrastructure could make it easier for institutional investors and traditional financial firms to access crypto, increasing demand for trading, custody, payments and liquidity services.
For crypto markets, a sustained return of traders and market makers would show up in rising volume, deeper order books, and greater capacity to absorb large trades. That would begin to close the gap between the market’s recovering valuation and its reduced trading activity.
Goldman’s inflection point thesis therefore depends on whether higher valuations can attract the capital and participation that have been missing for most of the past year. If they do, the recovery should extend beyond prices and into the liquidity supporting them.
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