CoinMarketCap and other data aggregators claim that crypto markets have recently seen their highest volumes ever, with exchanges across the board purportedly processing over $80 billion in trades each day.
However, a report released earlier this year revealed that a majority of cryptocurrency platforms have been facilitating wash trades and other ways to fake volumes. And as a result of this, companies in the space have begun to crack down on this, especially considering the importance of data in a numbers-driven market like Bitcoin’s.
Crypto Giant Curbs “Wash Trading”
Huobi Global, one of the world’s largest cryptocurrency startups, recently told CoinDesk that it does not participate in any wash trading. The company’s chief executive, Livio Wang, remarked that it has taken action to “discourage” such questionable activities, as the propagation of fake volumes would not adhere by Huobi’s “core values”.
The thing is, the report, published by American Bitcoin investment firm Bitwise, suggested that Huobi was registering more volumes than it actually processed. Bitwise’s researchers explained that Huobi’s data had hints of an “anomalous pattern”, marked by an increase in “large trade sizes”.
By the time Bitwise released its report on March, the pattern disappeared, suggesting that there were questionable actors using Huobi’s platform. Weng vehemently denied this though, telling CoinDesk that after a “thorough check and review of our system”, they didn’t find much evidence of said pattern. However, he did add:
“We did identify a few of our market makers conducting what we suspect may have been wash trading for the sake of performance and marketing purposes. We have already communicated with these market makers and they have discontinued the strategies in question.”
Huobi isn’t the only company looking to have taken action in wake of the now-infamous Bitwise report. Per previous reports from Blockonomi, CoinMarketCap launched the Data Accountability & Transparency Alliance (DATA) earlier this year.
DATA is a consortium of industry companies seeking to promote “greater transparency, accountability, and disclosure” from all firms in the space. In a statement, the company noted that it intends to gather more sets of data to empower its users to make “more informed decisions”. CoinMarketCap added:
“The overarching objectives of DATA are to: 1) Review, align, and enhance reporting standards across the industry. 2) Identify gaps, propose strategies and measures to enhance data accountability and transparency.”
Fake Volume Still Present
Firms may be wisening up, yet data still suggests that cryptocurrency platforms are still reporting fake volumes. Per The Block’s Larry Cermak, fake volumes are still a prevalent issue in the cryptocurrency space.
By analyzing trade website data from SimilarWeb, which is a website traffic provider known to be one of the most reliable, and comparing them to the notional volumes of cryptocurrency exchanges, Cermak was able to try and determine what’s up with exchanges.
The analyst found a number of trends, including the fact that most exchanges deemed reliable by Bitwise had a high website visit count and a relatively low volume-to-site visit ratio.
Less reliable exchanges, on the other hand, like the lesser-known BitMax, DigiFinex, ZB.Com, and CoinBene, on the other hand, had registered an absurd amount of volume for little volume, and thus had volume-to-site visit ratios of over $25,000, compared to the ~$500 of Binance or $100 of Coinbase.
After crunching the numbers, “multiplying the minimum share of real volume by the self-reported volume figures,” Cermak determined that it is likely that 86% of all trading volume is seemingly fake, down from the 95% postulated by Bitwise. It’s clear that the industry evidently has ways to go when it comes to data integrity.
