Volume is an essential metric in crypto trading and investing. A high trading volume results in fair and usually less volatile price changes. Low volume can cause volatile price movements and open the doors to manipulation, making it much easier to execute pump and dump schemes.
You can measure volume in a few different ways. This can refer to the total number of coins traded in a given period, the total dollar value of all transactions in a given period, or the number of unique addresses used to buy or sell a particular coin.
Volume can mean several things depending on the calculation method. Let’s take a closer look at the different types of volumes you may encounter when trading cryptocurrencies!
Crypto Trading Volume explained
The trading volume of a cryptocurrency is measured by the number of coins or tokens traded in a given period of time. This is usually expressed as the number of coins traded per day. For example, if 1,000 BTC and 500 BTC are traded on two different exchanges on a particular day, the total daily volume of Bitcoin will be 1,500.
Another way to measure volume is to calculate the total dollar value of all transactions in a given time period. This is often expressed as the total dollar value traded per day. For example, if 1,000 BTC and 500 BTC are traded on two different exchanges for a total of $10,000 and $5,000 respectively, then the total volume of Bitcoin will be $15,000.
The number of unique addresses used to buy or sell a particular coin is another way to measure volume. It typically measures how diverse the market is for the given cryptocurrency and can demonstrate whale dominance for that crypto.
Want to see more content like this? Subscribe to Changelly’s newsletter to get weekly crypto news digests, price predictions and information on the latest trends straight to your inbox!
Stay on top of crypto trends
Subscribe to our newsletter to get the latest crypto news in your inbox
Why is volume important in cryptocurrency?
Cryptocurrency volume can be a useful indicator when it comes to determining the strength of a particular market. A large volume indicates a lot of interest in a particular coin and may indicate that it is actively traded. A small volume may indicate a lack of interest in a particular coin and that it is not actively traded.
High demand is also measured by the number of unique addresses used to trade a coin or token, the more the better. If the number of market participants is relatively low and whales dominate the market, this is not a good sign. If a small crypto has a significant amount of daily traded coins, but a low number of unique addresses, then it may be a scam.
You can also use crypto volume to determine an asset’s price. A large volume often indicates a lot of interest in a particular coin and that we are likely to see rising prices soon. A low volume often indicates a lack of interest in a particular coin and that its price is likely to fall. Additionally, higher trading volume also usually results in less volatility in the market, as it becomes more difficult for a single trader to change the price direction one way or another.
Additionally, the volume of a cryptocurrency is often used to help determine the liquidity of a particular market. Liquidity refers to how easy it is to buy and sell a particular coin. A market with high liquidity is one where it is easy to buy and sell coins and where there is little or no price difference between various exchanges.
Volume indicators
Various volume indicators are used in the cryptocurrency world. There is no one “good indicator” – all serve their own unique purposes.
Some of the most popular volume indicators include:
The total volume traded: the total number of crypto units traded in a given period. The dollar value of all transactions: the total dollar value of all transactions in a given time frame. The number of unique addresses used: the number of unique addresses used to buy or sell a particular coin. The percentage of total volume traded: the percentage of the total volume that represents a particular coin. The weighted average trade size : the weighted average trade size of all trades in a given period. The volume-weighted average price: the volume-weighted average price of all trades in a given period.
How to use volume indicators
All indicators have different purposes. They can be used to measure liquidity, help predict the future price of an asset, help weed out scams, and so on.
Some traders use volume indicators to help them make decisions about when to buy or sell a particular coin. Other traders use volume indicators to help confirm other technical analysis signals. For example, a trader can use a volume indicator to confirm a breakout on a candlestick chart.
Some indicators can be used to predict future prices – for example, the off-balance volume (OBV), which is a momentum indicator. The off-balance volume uses changes in a coin’s trading volume to help determine whether we are likely to see rising or falling prices in the near future.
It is important to remember that no indicator is perfect. Volume indicators should be used in conjunction with other technical indicators.
Can volume in Crypto be faked?
Yes, it is possible for volume to be faked on the crypto market. This is often done through wash trading, which is when a trader buys and sells the same coin multiple times to create the appearance of high volume. Although wax trading is illegal in many markets, it can be difficult to detect. A person or group of people involved in laundering may even use a multitude of unique addresses to hide their tracks.
Some exchanges have been accused of racketeering in the past. It is therefore crucial to do your own research and only trade on reputable exchanges.
Is high volume good?
High volume can be good because it indicates that there is a lot of interest in a particular coin. This often leads to an increase in the coin’s price.
However, it can also be “bad”. High and increasing volume does not always equal upward price movement. Bear markets tend to see higher volume due to many people rushing to sell their assets. Nevertheless, increased interest in a coin or a token is always beneficial for traders as it brings more potential buyers and sellers.
Is low volume bad?
Low volume can be bad for cryptocurrency because it indicates a lack of interest in a particular coin. This often leads to a decrease in the coin’s price. However, low volume can also be good for traders as price movement will be much more drastic. This leads not only to higher risk, but also to higher potential profit.
Frequently Asked Questions
How do you calculate cryptocurrency volume?
To calculate the volume of a cryptocurrency, you need to multiply the number of traded coins by the price of each trade.
What is a good volume for cryptocurrency?
There is no definitive answer to this question. Some people believe that high volume is good for cryptocurrency, while others think that low volume is better. Ultimately it depends on your own trading strategy and what you are trying to achieve.
How do I increase the volume of cryptocurrency?
If you want to increase the volume of a particular cryptocurrency, you can buy more coins or convince other people to buy more coins. You can also try to get the coin listed on more exchanges.
How does trading volume affect crypto?
Volume can affect crypto in a few different ways. You can use it to determine the strength of a market, the liquidity of a particular coin and its price. Volume can also be used to confirm other technical analysis signals.
Which cryptocurrency has the highest trading volume?
Bitcoin is a crypto with the highest trading volume, and Ethereum is the second largest crypto asset by trading volume.
Does volume increase a crypto’s price?
Not necessarily. High volume often indicates increased interest in a coin and its potential increase in value, but it can also indicate the beginning (or peak) of a bear market.
Disclaimer: Please note that the content of this article is not financial or investment advice. The information provided in this article is the author’s opinion only and should not be construed as offering trading or investment recommendations. We make no guarantees about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader or regular crypto user should research various points of view and be familiar with all local regulations before committing to an investment.
Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
UnCirculars – Cutting through the noise, delivering unbiased crypto news
