While markets remain depressed, over recent weeks, trading activity in the crypto world has seen an unexpected uptick. Volumes registered on sites like CoinMarketCap have surged, especially on Bitcoin trading pairs, leading some to consider the possibility that a bullish reversal is on the horizon.
But, Bitwise Asset Management, a San Francisco-based cryptocurrency-focused investment services firm, dropped a bombshell last week. The company claimed that 95% of all BTC trading activity is decidedly false.
Bitwise Claims 95% (Or More) Of All Bitcoin Trading Is False
For those who missed the memo, on Friday, Bitwise unveiled a report titled “The Real Bitcoin Market.” While its title sounds innocuous enough, this wasn’t exactly the case. The firm’s researchers remark that while some expect for Bitcoin markets to be “uniquely orderly and efficient, with tight spreads and nearly perfect arbitrage,” this is far from the case.
Over a series of slides, Bitwise reveals that this explains that this budding ecosystem is often disjointed, with there being great discrepancies in exchange prices. And this is purportedly for good reason. As explained earlier, volume readings posted on “data aggregators” could be 95% false “and/or non-economic in nature.”
1/ New Research from us @BitwiseInvest.
As part of 226 slides presented to the SEC on our ETF filing, we did a first-of-its-kind analysis of *order book data* from all 81 exchanges reporting >$1M in BTC volume on CMC.
TLDR: 95% of reported volume is fake but LOTS of good news! pic.twitter.com/TuXLlDCRyP
— Bitwise (@BitwiseInvest) March 22, 2019
To back this foreboding fact, Bitwise draws attention to “suspicious exchanges” such as the little-known CoinBene, which actively claims to have supported hundreds in millions worth of BTC trades each and every day. CoinBene purportedly utilizes “trade printing” between the bid and ask prices, hinting that there could be a bot behind much of the trades.
In another case, a platform known as RightBTC had a number of periods, which extended to “multiple hours and days,” that had zero volume, even though it claims to have “roughly 4x the volume of Coinbase Pro.” Lastly, it calls on CHAOEX, which sported trading periods that looked extremely “monotonic.”
As data providers give exchanges a platform often without question, many pointed fingers at CoinMarketCap following the release of the report. While the company was quiet about the subject matter for four days, a company representative issued a statement to Bloomberg.
Per the report, Carylyne Chan, CoinMarketCap’s global head of marketing, wrote to the outlet that these fears about false volumes “are valid.”
As such, Chan explained that the firm will be adding more tools, namely liquidity gauges, exchange wallet balances, and traffic figures, to give the site’s millions of daily users (the site is a top-500 webpage) a better way to determine the actual standing of this budding market. She explains:
“For instance, if an exchange with low traffic has $300M volume and just 5 BTC in its wallet, users will be able to draw their own conclusions without the need for us to make arbitrary judgment calls on what is ’good’ or ’bad.’”
Could Bitwise’s Report Be A Boon For Crypto?
While Bitwise’s report likely irked many a crypto investor, some have made the surprising argument that, somehow, there are silver linings in this case. In a recent CoinTelegraph Youtube segment, Mati Greenspan of eToro claimed that the discrediting of false volumes show that Bitcoin markets are surprisingly efficient.
In a podcast interview conducted by industry content creator Peter McCormack, Bitwise’s head of research, Matt Hougan, expressed a similar sentiment. He explains that when you boil the cryptocurrency market down to its bonafide roots, it makes a lot more sense.
In fact, Hougan explains that if you are to only take legitimate trading activity into account, Bitcoin’s market looks a lot more like that of gold and other commodities. And this, of course, could set a positive precedent for Bitwise’s Bitcoin ETF application, which is currently being looked over by the SEC.