September Saw CEX Trading Volumes Plunge to Lowest Levels Since June

Binance experienced the sharpest drop, while Crypto.com saw some impressive growth. Despite the slowdown, open interest surged after the latest US Federal Reserve interest rate cut. Meanwhile, a Binance research report pointed out concerns over overvaluation and centralization of token ownership, which could threaten the crypto market's stability. Despite the trop in exchange volumes, Kraken recently expanded its services by launching a derivatives platform in Bermuda. Coinbase is still dealing with its legal battle against the SEC, and asked for CFTC communications to defend against the charges that were brought against the exchange by the SEC. 

CEX trading Activity Slows

In September, there was a noticeable decline in trading activity across centralized cryptocurrency exchanges. In fact, spot and derivatives trading volumes dropped by 17% to $4.34 trillion, according to the latest report from CCData. 

This was the lowest monthly trading volume since June, and was largely driven by the end of the seasonality period, which typically sees reduced market participation. Both spot and derivatives markets faced big declines as traders stayed on the sidelines because of macroeconomic uncertainty.

Monthly spot trading volumes for the top 10 exchanges (Source: CCData)

Spot trading volumes fell 17.2% to $1.27 trillion, hitting the lowest level since June. Similarly, derivatives trading volumes on centralized exchanges declined by 16.9%, reaching $3.07 trillion. Despite the downturn, market analysts are still optimistic that this lull in activity may reverse in the coming months. 

Potential catalysts like increased liquidity from possible U.S. Federal Reserve interest rate cuts and the upcoming US presidential election could stimulate trading activity. Historically, the fourth quarter has been the strongest in the crypto sector, with the highest quarterly volumes recorded in six of the past ten years.

Among the centralized exchanges, Binance experienced the sharpest decline as its spot trading volume plunged by 22.9% to $344 billion. This was its lowest monthly spot trading volume since November of 2023. This drop also brought Binance’s spot market share down to 27%, the lowest level since January of 2021.

In the derivatives market, Binance saw a 21% drop in trading volume, reaching $1.25 trillion, the lowest since October 2023. Binance now holds 40.7% of the derivatives market, which is the lowest share since September of 2020. Its combined market share in both spot and derivatives fell to 36.6%.

Combined spot and derivative CEX market share for September of 2024 (Source: CCData)

On the other hand, Crypto.com saw impressive growth despite the broader market decline. The exchange’s spot and derivatives volumes surged by 40.2% and 42.8%, respectively, reaching all-time highs of $134 billion and $149 billion. This growth pushed Crypto.com’s combined market share to 6.48% in September.

Despite the overall decline in trading volumes, open interest surged 32.1% to $52.4 billion in September. This spike followed the Federal Reserve’s decision to cut interest rates by 50 basis points. Which fuelled renewed optimism among traders.

Centralization and Overvaluation Threaten Crypto Stability

According to a report from Binance, the crypto market faces serious risks because of overvaluation and the centralization of token ownership. The report warned that if these issues are not addressed and taken care of, they could undermine the long-term stability and integrity of the crypto industry. 

The Binance report specifically referred to inflated valuations, especially in newly launched tokens, as a major concern. These high valuations can create bubbles that could lead to poor performance due to a mismatch between supply and demand. 

Venture capital funds that once aggressively invested in the crypto market, are starting to slow their deployment and are shifting toward sectors with more stable valuations. The report also stated that as more tokens with low circulating supplies enter the market, the supply of tokens available in the secondary market will increase a lot, which could harm the performance of many tokens.

In addition to overvaluation concerns, Binance also pointed to the risks posed by the centralization of token ownership in many crypto projects. The concentration of tokens in the hands of a few large holders could lead to governance issues, market manipulation, or sudden sell-offs that destabilize the market.

Token supply held by related addresses (Source: Binance Research)

Transparency is another critical issue raised in the report. Binance argues that a lack of transparency in treasury management can erode trust and harm a project’s long-term sustainability. Companies like Coinbase are introducing proof-of-reserves, which helps mitigate at least some of the risks that were pointed out in the Binance report.

Kraken Launches Derivatives Platform in Bermuda

Although volumes of exchanges are dipping, it is not stopping these platforms from expanding. Kraken recently launched a derivatives trading platform in Bermuda after receiving a license from the Bermuda Monetary Authority (BMA). 

This move makes Kraken the latest crypto exchange to establish operations on the island. Bermuda is becoming an increasingly attractive location for regulating crypto activities, and Kraken’s licensing marks a big expansion in the region.

The BMA granted Kraken, which is operating under the legal name Payward Digital Solutions, a Class F Digital Business License on July 30. This license allows Kraken to provide a range of services, including wallet services, operating a digital asset derivative exchange, and offering digital asset lending and repurchase transactions. Alexia Theodorou of Kraken Derivatives confirmed the licensing.

Kraken’s new platform offers over 200 contracts for perpetual and fixed-maturity futures, with collateral options in fiat currencies and over 30 cryptocurrencies. Head of trading Shannon Kurtas shared that the launch is well-timed as derivatives now account for the majority of crypto trading volumes. 

Bermuda’s pro-crypto stance has made it a very attractive destination for crypto businesses. Since 2018, when the Bermuda Digital Asset Business Act was passed, the island attracted investments from major players like Binance, which established a global compliance base there. The Bermuda Stock Exchange also became the first to host a Bitcoin exchange-traded fund in 2020. Coinbase International and Hong Kong-based HashKey Group also launched operations in Bermuda.

Coinbase Demands CFTC Communications

Trading volumes might not be the only challenge for some exchanges. In fact, Coinbase is still butting heads with the SEC. Coinbase recently petitioned a federal court to compel the Commodity Futures Trading Commission (CFTC) to provide communications with the issuers of 12 cryptocurrencies that the SEC alleges are unregistered securities. 

Coinbase’s motion to compel (Source: Court Listener)

The exchange wants these documents to help in its defense against an SEC lawsuit that was filed in June of 2023. The regulator accused Coinbase of operating as an illegal broker, securities exchange, and clearing agency.

Coinbase claims that the CFTC ignored its subpoenas, and failed to search for or provide the requested information, despite a federal judge ordering the SEC to produce similar materials. The exchange also argues that the CFTC’s communications with crypto issuers could clarify the regulatory status of the tokens in question and is essential for Coinbase’s defense. 

The CFTC previously rejected Coinbase’s requests due to issues of overbreadth, burden, and privilege, though it stated that it is willing to reevaluate a narrowed subpoena. Coinbase disputes the CFTC’s claims and insists that no privilege should apply to these communications with external parties.