The Problem Of Fake Volumes In Crypto-Markets

Is there any chance of this ever going away?

Some months ago, Bitwise disclosed how the crypto-markets were manipulated in a white paper that was 104-pages long.

In the revealing report, the authors used various techniques to evaluate and disclose all inconsistencies found in recent trading data.  The discrepancies between actual and reported trading volumes of various cryptocurrency exchanges were one of the revelations.

However, this did not come as a shock to crypto enthusiasts and the community. To make the most relevant data easier to understand, take a look at the following infographic prepared by Paybis exchange: 

volume
The Problem Of Fake Volumes In Crypto-Markets 1
The Problem Of Fake Volumes In Crypto-Markets 2

Why Do Exchanges Report Fake Volumes?

After discovering how crypto trading platforms manipulate data on their sites, Bitwise proceeded to disclose the reason they do this. 

The reasons they uncovered are summarized below:

  1. The media gives more attention to popular exchanges

For exchanges to become well known and attract new customers, they report inflated volume figures to rank high CoinMarketCap’s Exchange listing .

This way, the exchange looks like a leading  platform which in turn gives them more coverage in the media.

  1. Higher listing charges from IEOs, Altcoins, and ICOs

Top-tier exchanges charge expensive listing fees from cryptocurrencies that want to be listed on their platform. This is because higher volumes indicate more trading and, when more people trade a particular coin, there’ll be higher liquidity.

How to Combat Fake Volumes in Cryptocurrency Markets

One way to check the menace of fake volumes in crypto markets is by using the Liquidity Metric.

In November last year, CoinMarketCap – a website renowned for tracking the activities of over the most popular exchanges and cryptocurrencies  – introduced this particular metric to help users filter platforms in a better way.

The Liquidity metric was designed after the mindblowing disclosure of Bitwise. Shortly after the revelation,  Carylyne Chan, the Chief Strategy Officer of CMC, declared they would launch an investigation and ensure there’s transparency in the crypto market.

Regulating the Crypto-Market

In the US, all crypto  exchanges are mandated to have a BitLicense. This license is issued by the Financial Services Dept. in New York and it ensures all the crypto services are operating within the confines of the law.

The Growing Maturity of the Crypto Market

It’s been 2 years since Bitcoin reached $20,000 (it’s All-Time High price). However, from 2018 till date, the crypto market hasn’t seen such price surges anymore (this was also confirmed by Bitwise). Even with this, customers are still reluctant to invest as the price of Bitcoin fell to about $3,800 recently.

But that didn’t stop governments and big institutions from becoming involved and finding ways to produce state-backed currencies at the same time, exploiting the blockchain.

As the variance of Bitcoin’s price in the major exchanges decreases, the arbitrage trading opportunities also reduces which goes a long way in stabilizing the market. 

What Should Be Expected

Even though bogus volumes in crypto-markets still exist, investors will learn to overlook crafty exchanges that engage in such practices and opt for transparent cryptocurrency exchanges. 

Furthermore, websites like CoinMarketCap will create more effective volume metrics that will make popular exchanges grow substantially.

In conclusion, Bitcoin and several leading exchanges are gradually making progress towards being more regulated and transparent in their operations. Thankfully, this trend will continue for a long time.

Also Read: Best Bitcoin Exchanges for Trading