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The ugly truth about crypto-assets exchange volumes

On April 2nd, a breakthrough occurred, marking the end of the crypto-winter. Not only Bitcoin, but also many altcoins, surged by +25-30%, but this happened on huge exchange volumes. In the meantime, some observers estimate that up to 95% of reported volumes could be fake.

Source: CryptoCompare


Exchange volume: a major variable

Volumes of traded cryptocurrencies have risen big-time, mainly when expressed in cryptocurrencies. A significant feature that was observed in the weeks immediately preceding April 2nd was the sharp increase in volumes traded on the exchanges. Something was happening, and today it can be said the bulls have had their hopes confirmed.


Some caution must be shown, though. It has been revealed that unscrupulous exchanges have been reporting fake volumes. From an exchange point of view, one of the most critical statistics traders/ investors look at is liquidity. So, when you look at CoinMarketCap.com and identify a crypto-asset you like, your next step is to check the exchanges on which it trades; you will tend to pick an exchange that trades the highest volume in the pair that interests you. Therefore, some exchanges are tempted to cheat when reporting volumes, to improve their rank and attract customers.


Some observers estimate that up to 95% of reported volumes are fake, mostly due to exchanges matching their own buy and sell orders, which are created simultaneously when the spreads are wide enough. Notably, BitWise issued a report for the attention of the US SEC in which they analyzed raw data reported by exchanges, from several angles, and plotted the volumes per size of the deal by exchange, and other metrics. Very convincingly, they demonstrated, with a few exceptions, that exchanges process systematically created fake orders to inflate volumes.


It is worth mentioning that BitWise also identified several reliable exchanges, by volume: Binance, Bitfinex, Kraken, Bitstamp, Coinbase, Bitflyer, Gemini, itBit, Bittrex, and Poloniex.


Bottom line

Even though BitWise’s method may be irrelevant, what matters is the fact that fake exchange volumes are reported – a lot. The crypto world is still a wild west! The positive consequence is that volume variations in the short-term might be useful data, but analyses of volumes over several months or years may not be as helpful for drawing long-term conclusions. Check the full version of Blockchain Quarterly (Q1 2019) report for more Insights.