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Trading volume in cryptocurrency markets can be an important signal of price volatility, but is there a clear link that traders can use to assist influence their investment decisions?
Trading volume is one of the primary parameters that investors use to analyse price changes and estimate the market forecast for a certain coin in terms of liquidity and trading activity.
The following list focuses on the fortunes of five currencies that have had the biggest rise in average daily transaction volume this month compared to the previous month. Most of them — but not all — turned out to be huge winners in terms of monthly returns, although the link between price and trading was not always as expected.
Polygon (MATIC ): +643.79%
Polygon has had a spectacular month, conquering one all-time high (ATH) after another, capitalising on the brisk activity in the DeFi sector and the increase in the number of projects sprouting up on its platform. The cryptocurrency gained 329 percent vs USD and 456 percent vs BTC, as well as a 643 percent rise in average daily trading volume.
The trade volume dynamics followed each price increase accurately, reaching an astonishing $11 billion on May 19. On that day, MATIC accounted for up to 4.5 percent of the total trading volume in the cryptocurrency market.
Ethereum Classic (ETC): +229.23%
ETC is a heritage chain of the original Ethereum that has been abandoned by much of the community in the aftermath of the 2016 DAO hack. It has a tiny but ardent audience and a reputation for being a network weak in security.
Speculation abounds as to what prompted ETC’s 300 percent price increase, which was quickly followed by a surge in trading volume in the first week of May. Opinions range from people looking for less expensive options to the main Ethereum network to novice investors mistaking the cryptocurrency for its more well-known cousin.
At any rate, at the height of its May 6 rally, ETC commanded a shocking 15.9% of the crypto market’s overall trading volume — not too bad for a coin that has risen from years of oblivion.
Telcoin (TEL): +507.8%
Telcoin, a worldwide remittance company whose token has gained 437 percent versus USD and 600 percent versus Bitcoin in the last month, owes at least some of its success to Polygon’s ferocious run. The likely cause of TEL’s early May spike was a layer-2 move to the lower-fee Polygon network, followed by the token’s subsequent placement on QuickSwap, which opened up favourable terms for liquidity providers.
As shown in the graph, the QuickSwap event resulted in the highest rise in TEL trading volume, rather than the even larger price spike that occurred a few days later.
iExec RLC (RLC): +1,153.62%
RLC, the native token of cloud computing platform iExec, saw the biggest month-to-month gain in average daily trading volume, increasing by 1,153 percent over the previous 30-day period. Following the news of a Coinbase Pro listing on May 4, the coin’s price began to rise, and it was bolstered even further by a slew of other exchange listings, high-profile partnerships and collaborations, and the launch of a developer incentives programme. RLC gained 200 percent vs USD and over 300 percent versus Bitcoin throughout the course of the month.
According to the figure provided by data analytics business The TIE, the trade volume indicator tracked the significantly rising price movement with a few hours’ lag on May 8 and early May 9. The two lines then essentially blended, showing that additional increases in trade volume were no longer exclusively driven by price action, but instead began responding to news and increasing emotion surrounding the currency on their own.
OKB Token: +253.28%
This month, the average daily trading volume of the OKEx exchange token, OKB, increased by more than 250 percent. However, this did not result in a rise in the utility token’s price: over the same 30 days, OKB lost 18.76 percent versus USD and gained just 4.89 percent versus the battered Bitcoin.
A glance at the token’s price vs. trading volume data helps to explain this disparity. While trading volume mainly tracked price movement in the first half of the month, it sharply diverged around May 19 and 20, coinciding with the market-wide fall. The trade volume increased as the price fell.
The nature of the asset holds the key to this seemingly incongruous relationship. OKEx decreases OKB supply every three months by purchasing back and burning a few million coins in order to maintain the token’s value high. Because the current burning period is slated to conclude at the end of May, some traders may have bet on OKB remaining afloat due to the guaranteed repurchase liquidity at a time when other digital assets were in a tailspin. Indeed, a boost in trading volume aided a short comeback, but it could only last a few days before the asset began to fall again.