The month of January has been a wild one for the broader cryptocurrency industry. Solid price performance was met with exchange outages and extreme volatility. The sector is firing on all cylinders and gaining more recognition, albeit exchange performance needs to improve.
Significant Trading Volume Causes Exchange Issues
It is not unusual to see centralized exchanges crumble under the growing number of requests from users and traders. The vast majority of these top platforms still seem ill-equipped to handle mainstream demand for BTC, even if it is just a temporary increase in volume. More specifically, every major exchange has seen some issue in January, which is entirely unacceptable.
According to the new Kaiko report, Coinbase, Kraken, OKEx, and Binance had significant issues. These range from connectivity issues to APIs going offline and suspending withdrawals. Far from an ideal situation, considering the vast increase in Bitcoin trading volume on January 29th. When one exchange suffers, the situation is bearable. If four of them have issues on the same day, a very problematic situation ensues.
More importantly, any exchange can trigger market volatility. The report indicates there was significant intraday volatility throughout the past few months. In multiple cases, there were double-digit price crashes. Seeing a double-digit price increase has become a rare event, although the overall bullish momentum for Bitcoin is far from over at this point.
It is unclear if this volatility has ties to the ongoing exchange woes lately. However, it seems other factors at play can influence the BTC value, either for better or worse. Recently, Elon Musk tweeted about Dogecoin again, triggering an immediate Bitcoin price collapse. Rationality is often challenging to come by in these markets.
Ethereum and USD Liquidity Improves
One crucial takeaway from the Kaiko report is the increase in Ethereum and USD liquidity. Ethereum notes vast improvements in the past twelve months, indicating that institutional traders are paying more attention. Whether that situation will remain the same, or improve further, remains to be seen. More liquidity is beneficial to any exchange facilitating Ethereum trading.
In somewhat similar news, exchanges note an influx of USD trading volume. It is a surprising turn of events, considering the popularity of USD-pegged stablecoins such as USDT and USDC. Even so, there are less than 20% of traders occurring through stablecoins in recent weeks, which is an intriguing development. It only confirms that, despite noting increasing market caps, USDT and USDC remain a minor factor in this industry.
The big question is what the year 2021 will bring for Bitcoin. A new all-time high closer to $50,000 is welcome, albeit not necessarily achievable right away. The broader crypto industry benefits from the ongoing improvements in liquidity and USD trading as well. As such, any exchange should note an increase in active users, assume this trend keeps up.