Report Suggests Vast Majority of Bitcoin Trade Volume is Faked

There are several aspects of cryptocurrencies that have served to keep them from truly reaching mainstream status. While much-reported hacks are one element scaring off investors, concerns over market manipulation — including “pump and dump” schemes — have also been rampant. Now a new report is stoking those fears once again as it suggests that true crypto trade volume is a mere fraction of what some have said.

As the Wall Street Journal reports, findings by Bitwise show that as much as 95% of Bitcoin’s trading volume is artificial. This discrepancy means that, while CoinMarketCap reports $6 billion in volume from March 4th through the 8th, the actual number may be close to $273 million.  The company came to this conclusion after monitoring and assessing data from 81 cryptocurrency exchanges over a four day period. Of those 81 exchanges, 71 produced data the firm found to be questionable, with patterns seemingly indicating manipulation of some sort.

These finding from Bitwise are actually somewhat in line with what previous researchers have found. WSJ cites a report from Crypto Integrity that found 88% of trade volume for February was fake. Similarly the firm TIE  announced just this week that three-quarters of exchanges included suspicious activity.

Speaking of exchanges, Coindesk notes that among the 10 exchanges Bitwise found to have real trade volume were Coinbase, Binance, Kraken, Gemini, and others. Of those Binance had the largest average daily volume, totaling $110 million. That’s nearly three times the average volume of second place Bitfinex’s $38 million.

In the case of each of these exchanges, Bitwise found several signs that suggested real trades. For example volume logically increased or decreased depending on the time of day. Additionally the company found that trades on exchanges considered legitimate had far more small transitions than large ones, also suggesting that real people were behind these moves. Meanwhile some giveaways that an exchange is inflating numbers are that buy and sell orders often arrive in tandem, the number of small transactions was lower, and trade volume stayed relatively consistent throughout each day part.

Bitwise’s report was compiled to present to the Securities and Exchange Commission (SEC) as the company plans to debut a Bitcoin-based ETF. As a result of their research, Bitwise says it intends to only use data from the 10 legitimate exchanges it listed in its report. The company’s head of global research Matthew Hougan also noted that each of these exchanges was well-regulated.

On the one hand, news that such a large portion of the cryptocurrency market may be faking numbers is certainly cause for concern. However, at the same time, it’s clear that Bitwise is attempting to draw a line in the sand with their report and separate the “legitimate” exchanges from the rest. It’s unclear whether this strategy will help them gain SEC approval, it’s certain to turn heads either way — for better or worse.


Also published on Medium.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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