LMAX Digital volumes came off a bit on Tuesday, but still held above the 30-day average. Total notional volume for Tuesday came in at $2.3 billion, 2% above 30-day average volume. Bitcoin volume was however 16% below the 30-day average on Tuesday, coming in at $1 billion. Ether volume continued to track at elevated levels, up 32% from 30-day average volume, coming in at $761 million.

Average trade sizes held steady and within familiar ranges for both Bitcoin and Ether on Monday. Bitcoin average trade size was around $10,000, while Ether average trade size was around $8,000. Total notional volume at LMAX Digital over the past 30 days comes in at $68.3 billion. The average daily trading range for BTCUSD is $4,171. The average daily trading range for ETHUSD is $385.

The shakeup in crypto markets has intensified into Wednesday, with Bitcoin dropping back below $40,000 for the first time since early February and Ether sinking below $3,000. Bitcoin and Ether are now off some 40% and 30% respectively from recent record highs.

The market has been looking to the news around Tesla and regulatory headwinds out of China as reasons behind the turnaround, though we have been warning for some time that a correction was due given the pace of the bull run this year.

On Tuesday, China was out reiterating its 2017 stance that local financial and payment institutions should not engage in or provide services to crypto related businesses. But much like the Tesla story, we think assigning the pullback to the China news would be a gross exaggeration of the reality that this is indeed a market that has run too far and fast and a market that is still very much correlated to broader risk sentiment.

If anything, we would assign investor worry around rising inflation risk and the impact this is having on stocks as a more legitimate reason to reconcile weakness in crypto. Crypto is considered to be an emerging market, and as such, a risk correlated market vulnerable to downturns in global sentiment.

Our biggest concern with respect to the outlook right now, and particularly in reference to the price of Ether, is that the monthly chart, as referenced in this report, is still showing the price of Ether trading at severely overbought readings. This suggests there could be plenty more room for decline before Ether finds its feet again.