- JPMorgan reports a 24% drop in crypto trading volume in January, despite increasing market capitalization and ongoing institutional interest.
- Bitcoin’s correlation with small-cap tech stocks in the Russell 2000 strengthens, challenging its perception as a stable alternative to gold.
The cryptocurrency market has always been unpredictable, but the start of this year has been particularly unusual. According to a recent JPMorgan report, the crypto market cap increased by 8% in January 2025 to over $3.4 trillion, although trading activity declined. With average daily trading volumes declining by 24%, the market might not be as active as the capitalization numbers alone imply.
Bitcoin and Altcoins: Between Increasing and Declining Activity
With a capitalization still rising, Bitcoin is still a big player. Apart than Bitcoin, Solana and XRP also showed rather decent market value increase. Still, underlying this rise, trade activity throughout the crypto industry has actually dropped.
This phenomenon implies that rather than resulting from higher engagement by active traders, the price surge could be more driven by outside events including speculation.
Not only that, the decentralized finance (DeFi) and non-fungible token (NFT) sectors have also slowed down. Several DeFi projects that were previously widely traded are now experiencing a fairly significant decrease in activity. This raises the question: are investors starting to lose interest or are they just waiting for better opportunities?
Regulation and Market Sentiment: An Influence That Cannot Be Ignored
One factor that plays a role in this dynamic is changes in regulation. In the US, the new administration has formed a special task force to handle crypto regulation.
One decision that has attracted quite a lot of attention is the revocation of accounting rule SAB 121 which has been considered a barrier to institutional adoption of digital assets. With this change, it is expected that more traditional financial companies will enter the crypto ecosystem.
For many investors, nevertheless, regulatory uncertainty still bothers them. Though some encouraging actions have been taken, it is nevertheless unknown how laws in different nations will develop in the next months. Some market players have decided to be more conservative in this context.
Bitcoin Correlation with Tech Stocks
On the other hand, a prior CNF report revealed that Bitcoin is actually more correlated with small-cap tech stocks in the Russell 2000 index than with precious metals such as gold. This correlation appears to be getting stronger when the market experiences spikes and crashes.
In other words, the movement of Bitcoin is progressively mimicking highly volatile small-cap tech stocks. For investors that view Bitcoin as a more consistent asset or similar to gold, this is absolutely noteworthy.
This shift also demonstrates how, although being referred to as “digital gold,” in fact this asset typically fluctuates in conjunction with high-risk stocks rather than safe-haven assets.
Given the current pattern, various things could transpire. It is not impossible that crypto trading activity would rise once more in the following few months if laws became more favorable and institutional money flows keep rising. If uncertainty still rules, however, the market can keep showing the same trend: market capitalization rises but trading activity stays slow.
