Mar 25 / 2019

Fake crypto transaction volumes to ruffle some feathers?

By Christopher Attard

As much as 95% of cryptocurrency exchange volumes have been artificially generated according to fresh studies, with the likely reason being to get listed in the top 100 on CoinMarketCap.

According to a report by Bitwise, from the $6 billion in reported daily trading volume, only $270 million (5%) is real. The analysis compiled data from 81 exchanges based on reported trading volume while excluding those with less than 1$ million transactions per day.

The first report compared behavioural performance of top exchanges with the volume histograms in smaller ones, which speak to an asymmetry only explainable by artificial trading. The report states:

Fake exchange have volumes that have no such resemblance and don’t correspond with broader market.

On a more positive note, however, Bitwise found that actual BTC trading volume is quite healthy when compared to gold given its market capitalisation.

Gold’s market cap is ~$7T with a spot volume of ~$37B implying a 0.53% daily turnover. Bitcoin’s $70B market cap would imply a 0.39% daily turnover, very much in-line with that of gold.

Bitwise also highlighted the decreasing arbitrage on exchanges with real volume, which is to say that “the average price deviation of any one exchange from the aggregate price is now less than 0.10%”.

Meanwhile, another report by trading analytics platform The Tie came to a similar conclusion, with researchers cross-referencing data between lesser-known exchanges and well-known ones like Binance and Kraken. In social media comments, The Tie wrote:

In total we estimated that 87% of exchanges reported trading volume was potentially suspicious and that 75% of exchanges had some form of suspicious activity occurring on them… if each exchange averaged the volume per visit of CoinbasePro, Gemini, Poloniex, Binance, and Kraken, we would expect the real trading volume among the largest 100 exchanges to equal $2.1 (billion) per day. Currently that number is being reported as $15.9 (billion).

Answering his own query about why exchanges fake volumes, Zhang tweeted:

(CoinMarketCap) is [the] highest traffic website in our space, and [the] biggest referrer for all exchanges. Ranked high on CMC has benefits for getting new users. BUT at the expense of DESTROYING CREDIBILITY with pro users.

This is not the first time cryptocurrency exchanges were accused of misreporting transaction volumes. Back in March 2018, a similar report warned of the same problems with exchanges. At the time, Binance CEO Changpeng Zhao had also taken to Twitter to argue that listing resources like CoinMarketCap were the main driver of fake volumes.

While this might seem like another doomsday scenario to some, reports plainly underlining both the shortcomings and developments of the space speak to a broader bona-fide mentality in the nascent sector. At the end of the day, no industry is without its faults, and current industry titans will soon have to seriously compete with decentralised exchanges that seek to remove the need for trust entirely.

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