The financial world is full of terminology that presents a big learning curve. One common question related to cryptocurrency is, “What does volume mean?”
The volume of a cryptocurrency is the total amount that’s been traded (bought and sold) in the previous 24 hours. If you’re looking at a specific exchange, it’s usually just the amount traded on that platform. So the bitcoin volume listed on site A is all the bitcoin traded on site A’s exchange in the past 24 hours.
Volume, or trading volume, is considered an important metric because it shows how people are reacting to a price change, for example. It can also hint at what’s sustainable and what’s a flash in the pan.
If a price goes up and there’s heavy volume, it could show people are selling it to cash out, or other traders are jumping on board hoping for a continued rise. Either way, the price usually does continue to rise. If the price rises but volume drops, you’ll likely see the curve level off as the price comes back down to earth. If the price and volume fall together, it usually shows a point of exhaustion, and you can expect a reversal soon.
It's kind of like the “Trending Now” list you can see on video streaming apps like Netflix, Hulu or Prime. If the show or movie is trending, it means a lot of people are watching it (which is volume). It doesn’t tell you if they like it, hate it, or just can’t stop watching the train wreck … it only indicates popularity. And the reason they show you this curated list is because most people want to watch (or do) what others are watching (or doing). It all boils down to FOMO – fear of missing out.
So while a trending video will catch your attention and you’ll probably watch it, trading volume lets you know that other people are engaging, and it might be worth checking out.
And just like it’s the blockbusters that usually trend, it’s the biggest and best-known coins that show highest volume (like BTC, ETH and XRP). If a new or lesser-known currency shows high volume, that’s something to take a closer look at.
You can also compare 1-day volume to 7-day volume to see if you can spot any unusual movements. If 30% of the past week’s volume happened during the last 24 hours, that’s pretty revealing.
Here’s the caveat: some online exchanges offer traders incentives, for example a “cash-back” reward, paid in crypto, that matches the fees paid. This would encourage more trading to earn the reward, which might give a skewed picture of how popular a coin really is. Yeah, it’s just like high school … popularity can be bought! And it’s often fake.
So volume isn’t a metric to put all your faith in. It just gives indication of certain trends, and shows you where to investigate further.
Disclaimer: The information and views supplied on the Coin Cloud blog are for educational and entertainment purposes only. We are not financial advisors, so please do your research and consult with a trusted financial specialist before investing your money.
Founded in 2014 in Las Vegas, Nevada, Coin Cloud is the leading digital currency machine (DCM) operator. With over 4,500 locations nationwide, in 48 states and Brazil, Coin Cloud operates the world’s largest and fastest-growing network of 100% two-way DCMs, a more advanced version of the Bitcoin ATM. Every Coin Cloud DCM empowers you to quickly and easily buy and sell over 40 cryptocurrency options with cash.
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