Why Crypto Trading Volume Drops After New Regulations (2023-2025)

Quick Takeaways

• Crypto trading volume decline surged 10-30% within weeks of major regulatory announcements from 2023-2025.
• U.S.GENIUS Act caused an average 18.7% drop in exchange volume, while the EU’s MiCA limited declines to ~12%.
• Exchanges that relocated or diversified (MEXC, HTX, Bitget) grew 3-5% QoQ, whereas Crypto.com lost 61% after complying with U.S. rules.
• Illicit transaction share fell from 0.9% to 0.4% in 2025, showing regulatory impact on market health.
• Analysts expect volume to rebound in early 2026 as firms settle compliance and new stablecoin niches expand.

Crypto trading volume decline is a measurable reduction in cryptocurrency exchange activity that follows the implementation of new regulatory restrictions. Between 2023 and 2025, this phenomenon appeared across most major jurisdictions, reshaping how traders and institutions allocate capital.

What counts as cryptocurrency regulatory restrictions?

Regulatory restrictions encompass any government‑mandated rule that changes how a digital asset can be issued, traded, or stored. Typical components include licensing requirements for exchanges, stablecoin backing rules, AML/KYC reporting thresholds, and tax‑reporting obligations. The United States introduced the GENIUS Act, while the European Union rolled out the MiCA (Markets in Crypto-Assets) framework. Asian regulators in Japan and Switzerland also issued clear licensing guidelines, contrasting with the more ambiguous approach taken by India.

Regulatory timeline 2023-2025

• Early 2023: U.S. SEC increased scrutiny on unregistered token offerings.
• Mid-2023: India announced mandatory tax reporting for crypto gains.
• Early 2024: Japan’s Financial Services Agency (FSA) required exchange AML upgrades.
• July 2024: EU voted to implement MiCA, with full effect from January 2025.
• June 2025: U.S. Congress passed the GENIUS Act, targeting stablecoin backing and exchange licensing.
• Q3‑Q4 2025: Several exchanges either relocated or restructured to meet new rules.

How restrictions translate into volume drops

Data from multiple industry sources paints a consistent picture:

Across the board, the first 30‑90days after an announcement saw volume dips between 10% and 25%, according to SQ Magazine. The effect is amplified when exchanges choose compliance over relocation, as illustrated by Crypto.com’s 61.4% quarterly fall.

Case study: United States - GENIUS Act

The GENIUS Act required every stablecoin on U.S. platforms to be backed 1:1 with USD reserves and forced exchanges to secure a dedicated stablecoin license. Within Q22025:

• Crypto.com’s spot‑market volume fell from $560.2B to $216.4B (‑61.4%).
• Overall U.S. exchange volume dropped 18.7% on average.
• Illicit transaction share fell from 0.9% to 0.4% of total volume.

Analyst Dr. Alex Thorn of Galaxy Digital called the drop “the clearest evidence yet that regulatory fragmentation is fracturing the global crypto market.”

Case study: European Union - MiCA

MiCA introduced a licensing regime for stablecoins and a clear framework for asset‑service providers. Because the rules offered a defined compliance path, volume contractions were milder:

• Average decline of 12.3% across EU‑based exchanges.
• Euro‑referenced stablecoin EURC grew 79% month‑over‑month, reaching $7.5B monthly by June2025.
• Institutions moved $5.95B into regulated crypto ETFs in a single week, indicating confidence in compliant products.

Asia’s mixed response

Japan and Switzerland released detailed licensing guidance in early 2024. Exchanges there saw only a 7.3% dip, then quickly recovered. By contrast, India’s tax‑reporting requirement led to a 22.1% average decline, partly because many users shifted to peer‑to‑peer platforms.

Exchange winners and losers

When faced with the same set of rules, exchanges took opposite paths:

• MEXC, HTX, and Bitget relocated core operations to crypto‑friendly jurisdictions, delivering quarter‑over‑quarter growth of 3.7%, 5.4% and 3.0% respectively.
• Crypto.com chose full compliance with the GENIUS Act, losing its #2 spot and dropping to #8 globally.
• Centralized exchanges overall posted a -27.7% QoQ spot‑market volume decline, even as Bitcoin’s price hit all‑time highs.

Impact on illicit activity and market health

Regulatory pressure also trimmed bad actors:

• Illicit transaction share fell to 0.4% of total volume in 2025 (TRM Labs), a 51% YoY drop.
• Reduced “toxic” volume helped improve exchange reliability scores, though user satisfaction dipped temporarily (average Trustpilot rating fell from 4.3 to 2.5 in Q12025).

While short‑term volume shrank, many analysts argue the market is maturing toward a more sustainable shape.

Investor sentiment and user experience

Reddit threads from May2025 show U.S. traders complaining about sudden delistings and portfolio reductions of up to 37%. Conversely, Swiss users reported a 22% rebound after the first month of regulation, citing “greater protection against scams.” Institutional hedge funds noted a 34% rise in compliance costs and a 28% loss in tradable opportunities.

Looking ahead: Will volume rebound?

Forecasts suggest a bounce back once compliance frameworks settle:

• CoinGecko expects a return to positive QoQ volume growth in Q12026.
• JPMorgan predicts stablecoins could generate an extra $1.4trillion of dollar demand by 2027, fueling new trade flow.
• Market‑wide crypto capitalization sits at $4.23trillion as of October2025, indicating resilience despite recent dips.

In short, the current dip is likely a transitional phase rather than a permanent contraction.

Practical checklist for traders and exchanges

1. Map the regulatory environment of every jurisdiction you operate in.
2. Identify licensing requirements early; budget for compliance staff (average 34% increase in operating costs reported by institutional users).
3. Consider jurisdictional diversification-relocating core matching engines can preserve volume.
4. Monitor stablecoin supply chains; shifts from USDT/USDC to EU‑backed EURC often signal upcoming volume reallocation.
5. Keep an eye on illicit‑activity metrics; a falling % may signal effective regulation but also reduced overall liquidity.

CoinGecko is a market‑data provider that reported the -27.7% quarterly drop in spot‑market volume for Q22025.

Chainalysis tracks global crypto transaction flows and highlighted that stablecoin transaction volumes exceeded $2trillion monthly in North America during 2025.

Bitwise Investments published a Q22025 review showing regional volume contraction averages of 7.3% (Japan/Switzerland) versus 22.1% (India).

JPMorgan forecasted that stablecoins could add $1.4trillion of dollar demand by 2027.

Galaxy Digital quoted Dr. Alex Thorn, who described the volume drop as evidence of market fragmentation.