The total cryptocurrency trading volume on centralised exchanges saw a significant decline of 20.1% in May, dropping to $5.27 trillion. This fall occurred despite the relative stability of major cryptocurrencies such as Bitcoin ($BTC) and Ethereum ($ETH).
The month saw a sudden spike in volatility after the US Securities and Exchange Commission (SEC) approved spot Ether exchange-traded funds (ETFs).
According to CCData’s latest Exchange Review report, spot trading volumes on centralised exchanges fell by 21.6% to $1.57 trillion. This marked the second consecutive monthly decline in trading activity.
Derivatives trading volumes also decreased by 19.4% to $3.69 trillion. Despite this decline, the market dominance of derivatives products increased to its highest level since December 2023.
The report attributed the growth in derivatives market share to heightened interest following the SEC’s approval of spot Ethereum ETFs.
This regulatory development led to an over 20% rise in $ETH’s price within a single day, prompting traders to flock to the derivatives markets to capitalise on the situation.
Decentralised exchange growth
Decentralised exchanges (DEXs) facilitate trades without a centralised custodian. As per the data provided by The Block, DEX trading volume experienced a sharp rise in March 2024.
This was driven by what was dubbed “meme season”. Volume surged from $79.12 billion in February to $178.68 billion in March, marking a 77.23% increase.
Centralised exchanges also saw an increase in March, with volume rising from around $5 trillion to $9 trillion, a 57.14% increase. However, this was a smaller jump compared to the growth seen in DEXs.
While DEX volume has historically been lower than CEX volume, there has been a recent uptick in activity on platforms like Uniswap, Curve, and Pancakeswap.
This data also illustrated how people are slowly moving away from CEXs, particularly in the light of the ongoing regulatory challenges faced by centralised exchanges.
Since the DeFi Summer of 2020, DEXs have become crucial for experienced crypto traders.
Regulatory pressure & market shifts
In 2022, the failure of crypto custodians like FTX resulted in significant losses for retail investors and intensified regulatory scrutiny on centralised exchanges. Major exchanges such as Binance, Coinbase, and Kraken have been targeted by US regulators.
The world’s largest centralised cryptocurrency exchange, Binance, was required to pay over $4.3 billion in fines and restitution. This was after the company and its founder, Changpeng Zhao, pleaded guilty late last year to violating anti-money laundering laws and sanctions.
While Binance managed to pay a $4.3 billion fine, the sustainability of other exchanges under such regulatory pressure remains questionable.
This has led many crypto owners to move away from centralised finance (CeFi) to decentralised finance (DeFi), where the risk of intermediaries is eliminated.
A steady growth in DEX trading volume has also been observed in the data from January 2019 to November 2023, although DEXs still accounted for less than 10% of the total trading volume compared to CEXs back then.
In June 2023, DEXs’ market share also peaked at 22% when the SEC first took action against Binance and Coinbase.
Specific comparisons reveal that while Binance processes $14 billion in daily spot trading volume, Uniswap, a leading DEX, has outpaced Coinbase’s trading volume for several consecutive months over the past year.
