Crypto CFDs during Long Crypto Winter: Did Retail Brokers Suffer?

Bitcoin has lost more than half of its value since the beginning of 2022, and on-chain indicators show that only the most hardcore HODLers have remained in the cryptocurrency market. The prolonged crypto winter is causing fewer transactions and decreasing the average trading volumes.

This affects negatively not only the 'physical' market for digital assets but also the contracts for difference (CFDs) industry, which recently was heavily based on bitcoin, ethereum (ETH), and a number of other altcoins. How are retail brokers responding to this situation?

The Cryptocurrency Market Picture Is Currently Negative Due to the Crypto Winter

June itself is the greatest summary of how bad the first half of 2022 was for cryptos. That month bitcoin lost 37.9%, closing its worst 30-day period since 2011, and ethereum slid 45.4%, closing its worst month since March 2018. Year-to-date, we have seen the market shift from a risk-on to a strong risk-off sentiment, and the declines correlated strongly with the bearish momentum in the stock market.

"According to Reuters and Bloomberg, trading volumes across major crypto exchanges worldwide declined more than 40% in June. Spot trading volumes also fell 27.5% across centralised coins in June, dropping to their lowest since December 2020, at $1.41 trillion. In fact, spot and derivatives trading (including CFDs) volumes declined more than 15% from their May levels. Derivative trading volumes, which account for 66.1% of the crypto market, fell to their lowest since July 2021 to $2.75 trillion,” commented Charlotte Day, the Creative Director at Contentworks Agency.

Falling prices and declining trading volumes have also translated into a declining interest in cryptocurrencies among clients of CFD brokers.

Retail Traders Are Currently Not Interested in Crypto CFDs?

XTB, a polish-based publicly-listed CFD brokerage, noted that the popularity of crypto-based CFDs has recently diminished. However, the company explained that in its case, "falls do not necessarily mean huge declines in volumes."

"The trading volumes on particular instruments are strictly linked with the volatility of that class of assets. The same applies to cryptocurrencies. The popularity of Crypto based CFDs was highest in times of significant growth and lower over last period," said Filip Kaczmarzyk, the Management Board Member responsible for Trading at XTB.

Additionally, Finance Magnates Intelligence spoke with other market professionals, who have all agreed that the retail market currently experiences a 'clear downturn in volumes'. Although other markets are also affected by current macroeconomic conditions, they are nevertheless seeing increased activity from investors, and thus from brokers and trading platforms themselves.

As XTB's Kaczmarzyk confirms, since the beginning of 2022, the most popular CFDs among the clients are instruments based on stock indices and commodities, which is "an implication of the current situation on the market."

To get the full article and the bigger picture on the future of the FX/CFD crypto industry, get our Latest Quarterly Intelligence Report HERE.