Key Takeaways
- On-chain activity for Bitcoin and Ethereum has declined for the fourth consecutive week.
- DEX share of trading volume rose from 14% to 22% last month amid regulatory pressure on centralized exchanges.
- DEX volume has since receded, and liquidity across the crypto market remains thin.
Many observers expect U.S. regulatory action to push crypto activity in two directions: offshore or into decentralized channels. The offshore shift is straightforward — tighter enforcement in the U.S. will force some crypto firms to relocate if they want to maintain their previous scale of operations.
Whether regulation will drive more on-chain activity is a more nuanced question. Decentralized exchanges (DEXs) surged during the pandemic-driven rally, but their trading volume dropped sharply through 2022. Centralized exchanges (CEXs) also saw lower volumes, yet the DEX-to-CEX volume ratio fell from 16.9% at the start of 2022 to 9.6% a year later, indicating DEX activity contracted more steeply than that of traditional platforms.
Could recent legal actions against major CEXs change that dynamic? Data from May showed a temporary increase in DEX market share: DEXs accounted for 22.1% of trading volume in May compared with 14.7% in April. But that gain proved short-lived — through the first twelve days of June, the DEX share had slipped back to 15.4%.
The timing of the lawsuits against Binance (filed June 5) and Coinbase (filed June 6) might suggest DEX usage would rise after those events. Instead, DEX share declined, although those legal moves may already have been anticipated by markets. Coinbase received a Wells notice months earlier, and Binance has faced ongoing investigations for some time. Price action reflects this: Bitcoin fell only modestly on the Binance lawsuit and barely reacted to the Coinbase news.
Interpreting these figures is difficult. Overall market volume is very thin — a trend explored previously — and on-chain activity and fees have dropped for four straight weeks for Bitcoin after the earlier spike tied to Ordinals and BRC-20 tokens faded. Even so, fees remain materially higher than at the start of the year.
Declines in fees and on-chain transactions are not limited to Bitcoin. Ethereum has also experienced four consecutive weeks of falling fees, and its activity levels have been trending closer to January levels.
Taken together, liquidity across the crypto ecosystem is sparse. Several factors contribute to this: the collapse in asset prices is a primary driver — lower prices typically reduce trading activity — and Bitcoin remains roughly 60% below its late-2021 peak, which has erased much of the manic trading environment seen then.
Regulation has also cooled enthusiasm, particularly among institutional participants. A clear example appeared recently when Crypto.com suspended its U.S. institutional exchange, citing limited institutional demand while keeping its retail services active. That decision underscores how regulatory uncertainty and waning institutional interest can reinforce one another.
Falling prices combined with a tightening regulatory regime create a difficult environment for the industry, explaining why many institutions have stepped back. The brief rise in DEX volume looked encouraging at first, but it appears to have reversed. Moreover, meaningful institutional capital typically flows through centralized venues that provide custody, liquidity and familiar compliance frameworks. Hopes that institutions would flood into crypto — as some did when companies like Tesla added Bitcoin to their balance sheets — now seem much more distant.