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The Problem Of Fake Volumes In Crypto- Markets

by Iyzklez
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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 was one of the revelations.

However, this did not come as a shock to crypto enthusiasts and the community. Still, the community find the revelation which was backed by hard proof somewhat disheartening.

Paybis compiled an infographic to help you understand the results of their research:

Paybis compiled an infographic to help you understand the results of their research.

Why Do Exchanges Report Fake Volumes?

After discovering the underhanded manner crypto trading platforms manipulate data on their sites, Bitwise proceeded to disclose the reason they did 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 inflated their figures to rank high CoinMarketCap Exchange listing .

They achieved this through reported BTC trading volume.

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

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

Top-tier exchanges charge expensive listing fees from cryptos seeking to be listed on their platform. In addition to this, 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 Liquid Metric.

In November last year, CoinMarketCap – a website renowned for tracking the activities of over 5000 exchanges
and cryptocurrencies – introduced Liquid Metric to help users compare the liquidity of different platforms.
The metric was designed after the mindblowing disclosure by Bitwise. This was after Carylyne Chan – the Chief Strategy Officer of CMC – declared they would launch an investigation and ensure there’s transparency in the
crypto market.

The metric aims to curb unethical manipulations of crypto platforms by using liquidity to filter exchanges.

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). Bitcoin’s price increased from
a modest $1,000 to an unbelievable $20,000 which caused the media to refer to the crypto market as
the “wild wild West”.

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 $3,200.

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.

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