September could turn into the second-lowest volume month of 2019. Monthly volume down significantly.

Bitcoin (BTC) Monthly Volume

Volume is arguably the most important indicator in technical analysis. This is especially true for instruments that have a fixed supply. Regardless of the market, volume is something that represents interest, sentiment and the outlook for a market. When we see prices rising as well as volume rising, we can interpret that there is significant interest in an instrument and that the sentiment of the participants is overwhelmingly bullish. When we see prices rising and the volume falling, then we can interpret the mood as a drop in interest in buying and a high probability of selling. When we see both price and volume dropping, we have a clear example of indecision. When this occurs, there is generally no fundamental or psychological element that is compelling people to participate in the market.

That last point in the prior paragraph is the focus of this article. One of the most anticipated events of the last 2-years has been the launch of the Bakkt Bitcoin Futures contract by ICE Futures. This is the first and only physical delivery contract for Bitcoin. For those unfamiliar with the futures markets, there is a difference between cash-settled and physically settled contracts. Most futures contracts are cash-settled, which means that nothing is delivered and a simple debit/credit is issued on the date of contract expiration. A physical settlement is different. A physically settled contract means, quite literally, that something is delivered to the buyer (coordination with a broker is generally necessary). Bakkt will ‘deliver’ to the buyer.

The launch of the Bakkt Bitcoin contract is one of the most important events in creating an image of legitimacy for Bitcoin and the cryptocurrency market as a whole. Bakkt has a $125,000,000 insurance policy. Bakkt also has put in $35,000,000 to the clearance fund as a ‘just in case’ scenario event. But the most important part of the Bakkt futures launch is the legitimacy of Bitcoin as an asset that professional and traditional money can get behind. So should we have expected a monstrous move higher in the spot market for Bitcoin? Absolutely! The fact that it didn’t happen isn’t a bearish or bullish factor. We should be more interested in the volume that Bakkt will attract, volume from traditional money.

The chart above is Bitcoin’s monthly chart.  Now, even though we’ve got another week before September is over, the volume here is something that needs to be looked at. For 2019, the volume in July was nearly identical to the largest volume month of 2019: May. July of 2019 was only the second month to trade above the 20-month average volume. But then we look at August’s volume and we see it took a big hit – it traded about 1/3rd less volume than July. And September looks worse. In fact, unless there is a massive upsurge in volume, September will be the lowest volume month for Bitcoin for no just 2019, but it could be the lowest volume month since November of 2016 – nearly 3 years.

But there’s light here at the end of the tunnel. There’s a clear bull flag on the monthly chart and if the current range of September remains, then this will be the third inside bar in a row on the monthly chart. Three consecutive inside monthly bars is extremely rare for Bitcoin, it has only happened once before back in March, April and May of 2012. This drop in volume in September could be the precursor to a massive move here in the near future.