What Does Volume Mean in Cryptocurrency?
Volume in cryptocurrency is the measure of how much of a specific cryptocurrency has been traded over a specific period. This metric indicates a digital asset’s market performance or activity over time.
Essentially, it measures the amount of crypto that has exchanged hands between market participants. Trading volume indicates an asset’s liquidity and activity, and is usually reported after a 24-hour trading period. It can also be estimated for trading periods extending for a week or month.
How Do Trading Volumes Work?
In most cases, the trading volume of an asset is measured by its value in US dollars. For instance, if Gigi purchases 15 ETH at $2,000, the volume of that transaction can be expressed as either 15 ETH or $30,000.
Trading volumes are impacted by market activities, and are typically higher for more actively-traded cryptocurrencies. Higher trading volumes are also associated with significant price fluctuations. Crypto markets with low volume are described as “inactive”, while active markets have a high volume.
The metric offers investors insight into the strength of an asset’s price movement. High trading volumes reflects a high interest in the cryptocurrency asset, which makes it more likely that the price movement is not just a random occurrence. On the other hand, if the prices fluctuate with the same margin in an inactive market, it indicates a weak move.
Crypto enthusiasts and analysts can use trading volumes to anticipate trend reversals. For instance, an increase in the volume during a downtrend may be a sign that the downward price movement is nearing its end. In addition, traders can use it to determine when to open or close a trade.