According to Forbes: “51% of Bitcoin’s Daily Volume Is Fake?”

Within the emerging and turbulent cryptocurrency market, where there are no fewer than 10,000 tokens, Bitcoin is the granddaddy, the blue chip, accounting for 40% of $1 trillion. Approximately 46 million American adults already own it, according to the New York Digital Investment Group, and a growing number of institutional investors and corporations are warming to the nascent alternative asset.”

“But can you trust what your crypto exchange or electronic brokerage reports about trading the most important digital currency?”

“One of the most common criticisms of Bitcoin is the widespread wash trading (a form of false volume) and poor monitoring between exchanges. The US Commodity Futures Trading Commission defines wash trading as “entering or pretending to of transactions to give the impression that purchases and sales have taken place without assuming market risk or changing the trader’s market position.”The reason some traders engage in wash trading is to inflate the trading volume of an asset , to give the appearance of rising popularity.In some cases, trading bots make these token wash trades, increasing volume, while at the same time insiders reinforce the activity with bullish remarks, pushing up the price in what is effectively a pump and dump.Wash trading also benefits exchanges as it allows them to appear to be larger in volume than they actually are, potentially encouraging more legitimate mnat trade.”

“There is no universally accepted method of calculating Bitcoin’s daily volume, even among the industry’s most reputable research firms. For example, at the time of writing, CoinMarketCap puts the most recent 24-hour Bitcoin trade at $32 billion , CoinGecko at $27 billion, Nomics at $57 billion and Messari at $5 billion.”

“Adding to the challenges are persistent fears about the solvency of crypto exchanges, highlighted by the public crashes of Voyager and Celsius. “

“A significant effect of this lack of faith in the underlying markets is the Security and Exchange Commission’s refusal to approve a spot bitcoin ETF.”

“Unfortunately for Bitcoin ETF hopefuls, many of these fears and criticisms are well-founded. As part of the Crypto Ecosystem Survey, using data from 2021, the top 60 exchanges in March are ranked. This research answers the questions:”

“Where is bitcoin traded?”
“How many bitcoins are traded each day?”
“How is bitcoin traded?”

“The study evaluated 157 crypto exchanges around the world. Here are the main findings:”

  1. “More than half of all reported trading volume is likely fake or uneconomic. The global daily bitcoin volume for the industry was $128 billion on June 14. That’s down 51% from $262 billion , which would be obtained by taking the sum of the volumes reported by the multiple sources.”

2. “Tether, the world’s largest stablecoin, continues to be a dominant player in the crypto trading economy, especially when it comes to trading against Bitcoin. Its current market cap is $68 billion, despite questions about its reserves.”

3. “In terms of how much bitcoin activity is taking place at these firms, 21 crypto exchanges generate $1 billion or more in daily trading activity, while the next 33 exchanges have volume between $200 million and $999 million across all types of contracts, spot, futures and perpetual. Perpetual futures, or perpetual swaps as they are known, are futures contracts that do not require investors to transfer their positions. Binance is the clear leader with 27% market share, followed by FTX. Looking at spot bitcoin alone, the top position is shared from Binance, FTX and OKX. Chicago-based CME Group is the market leader in Bitcoin futures trading.”

4. “The biggest problem areas in terms of fake volumes are firms that advertise high volumes but operate with little or no regulatory oversight that would make their numbers more credible, specifically Binance, MEXC Global and Bybit. -lightly regulated exchanges in the study account for roughly $89 billion of the true volume (they claim $217 billion).”

5. “The creation of new trading assets and products such as stablecoins and permanent futures adds complications for national authorities seeking to regulate crypto markets. Major US exchanges hardly use these instruments or contracts in their trading. Offshore exchanges do, however significantly as ways to synthetically create USD liquidity on their platforms.”

6. “In the Western world, and especially in the US, it’s tempting to think that Bitcoin only trades against the US dollar or the Euro and the British pound. But some of the biggest trading pairs happen against fiat currencies like the Japanese yen and the Korean won and against major stablecoins like Binance USD and USD coin.”

7. “573 million people visit crypto exchange websites on a monthly basis.”

“The survey uses quantitative and qualitative analyzes to correct the trading volume reported by the exchanges. Unlike other methods that perform tests on transaction data (and can also be fraudulent), the survey assesses the credibility of the firm by evaluates no less than five data sets that together inspire or undermine confidence in the data reported by the firm.The data comes from four crypto media firms, CoinMarketCap, CoinGecko, Nomics and Messari, as well as multiple exchanges and two other data providers from third parties.”

Research Approach

“The study relies on 10 factors, such as the exchange’s regulatory authority, if any, and volume metrics based on the exchange’s web traffic and expected workforce size. It also uses the number and quality of crypto licenses as a proxy , to gauge the sophistication of each crypto exchange in terms of regulatory and trade monitoring issues. If a firm demonstrates a commitment to transparency by running token proofs of reserve or by participating in the crypto exchange survey, it qualifies for “ transparency credit’, which reduces any ‘discount’ that might otherwise apply.’

“Много от тези фактори също присъстваха във формулата за класиране на крипто борсите. Разделени в три категории:”

“Група 1: 48 крипто борси, на които бяха дадени от 0-25% дисконтов процент, генерираха 39 милиарда долара реална търговска дейност с биткойн на всички пазари – спот, деривати и фючърси – на 14 юни.”

“Група 2: 73 борси с дисконтов процент 26% до 79% генерират 81 милиарда долара транзакционна дейност (срещу заявени 158 милиарда долара)”

“Група 3: Останалите 36 фирми бяха наказани с висок дисконтов процент (80-99%) и търгуваха 7,7 милиарда долара от заявените 59 милиарда долара.”


“Despite the global nature of cryptocurrencies, spot bitcoin trading is centered around relatively few currency pairs and stablecoins. Stablecoin USDT is the largest, followed by the US dollar. The next largest fiat assets are the yen and the won.”

“BTC-USD Daily Volume”
“Group 1 exchanges, many of which are based in the US, provide $24.3 billion in daily USD-BTC liquidity, and Group 2 exchanges add $17.3 billion. The prominence of Group 1 exchanges as a major source of BTC-USD is manifests through spot, perpetual and futures contracts. CME Group is the leading provider of Bitcoin futures globally, with $2.1 billion USD-BTC futures traded each day. There are at least 27 crypto exchanges – 12 in Group 1 – that have daily liquidity BTC-USD over $5 million.”

“BTC – U.S. TETHER Daily Volume”
“At $71.4 billion in daily volume, Bitcoin Tether (BTC-USDT) activity exceeds that of BTC-USD by 57%, with 79% generated by Group 2 crypto exchanges and 5% by Group 3. There are 77 exchanges – 44 in Group 2, 12 in Group 1 – with daily Bitcoin Tether volume over $5 million. Tether is prominent among the spot and permanent futures markets, less so among the regulated futures industry, which is largely absent outside the US.”

BTC – USD COIN Daily Volume
“USD Coin (USDC) is gaining popularity in the stablecoin arena. Daily liquidity for Bitcoin-USDC was $2.15 billion, with Groups 1 and 2 sharing a total of 39% and 60%, respectively. An interesting observation is that Group 2 exchanges use USDC actively in the Bitcoin spot market, while Group 1 exchanges do so with Perpetual. This different usage may suggest that that Group 2 exchanges may be open to the idea of ​​supporting an alternative to tether’s dominance of the stablecoin market.”

“USDT and Binance USD (BUSD) each generate more volume than USDC, but the latter now has 26 crypto exchanges (17 in Group 2) with daily trading volume of $5 million or more, compared to 77 exchanges for USDT and five with BUSD. If tether’s popularity starts to wane, USDC could be the stablecoin most likely to take the crown.”

Bitcoin Trading Volume by Exchange Group
“Top 10 Group 1 crypto exchanges by volume, with three from the US (CME Group, Coinbase, Kraken), one from Singapore (Crypto.com), one from Europe (LMAX Digital), four from offshore financial centers (FTX, OKX, Gate.io, BitMEX) and one from Central America (Deribit).”

“Among Group 1 firms, FTX is the largest and growing rapidly. Only in mid-2021, institutional funding fueled the transformation of FTX’s operations from a mid-sized unregulated exchange focused on offshore crypto derivatives to a global group from exchanges regulated today in the US, Japan, Europe and elsewhere. In addition to derivatives, FTX trades crypto spot, tokenized stocks and recently added stocks.”

“Group 2 crypto exchanges tend to be large and offer broad product offerings. They focus primarily on growth and tend to have much less interest in being regulated where they operate. They also tend to lack robust ways to track and deter of wash trading. Binance is the largest crypto exchange in Group 2, with $34.2 billion in daily trading activity, followed by Bybit with $8.9 billion. The majority of these exchanges are based in offshore havens such as Seychelles and the British Virgin Islands.”

“Group 3 consists of 36 crypto exchanges that, with few exceptions, are unregulated and small. Their huge self-reported volume and small number of visitors cast doubt on the possibility that a limited audience can really generate so much trading activity. An example of this is BitCoke, which CoinMarketCap identified as an exchange based in Hong Kong and the Cayman Islands that is said to have generated $14 billion daily – mostly from BTC-USDT.However, SimilarWeb shows that the exchange’s domain receives less than 10,000 visitors per month – as 53% come only from Argentina. Volume-to-traffic discrepancies plus a lack of regulatory authority lead the study to reduce this firm’s volume by 95% to $702 million.”

“As discussed above, BTC/USD and BTC/USDT are the largest spot pairs for Bitcoin, but there are several other pairs worth mentioning. The next largest are BTC-KWR, BTC-JPY, BTC -USDC and BTC-EUR.The decision of an exchange to offer underlying assets in Bitcoin, especially when it comes to fiat currencies, usually comes down to the local fiat currency used by the exchange’s customer base.Any of the companies trading bitcoin for won or yen , is based in South Korea or Japan, respectively. USDC, by the nature of its blockchain-based DNA, is easier to cross national borders. Readers may note that Kraken, Binance, or Coinbase are not based in Europe, although each of these have a series of licenses to operate in specific countries.Each of them offers euro trading as a way to attract new users, but unlike South Korea or Japan-based exchanges, the euro is not their most dominant main trading asset .”

“However, while eight pairs by volume garner most of Bitcoin’s volume, there are dozens of other varieties trading on obscure exchanges that are not accounted for even in the current study. For example, BTC-NGN volume is hard to find (Nigerian Naira) traded in Nigeria as crypto data firms such as Nomics, CoinMarketCap and CoinGecko generally do not track it.It is safe to assume that local crypto exchanges that are not widely known outside of Nigeria capture the majority of BTC-NGN liquidity, which is probably true of many other exchanges operating in emerging markets.”

“These observations are largely true when it comes to perpetual futures as well. However, the won and yen do not appear to have gained significant market share in this area.”

“Finally, when it comes to traditional futures markets, such as those that offer regular monthly expirations, the only two pairs that seem to matter are BTC-USD and BTC-USDT.”

“The Real Volume study revealed a number of key insights for crypto investors and the industry.”

“Bitcoin may be just the beginning of the problem. If the reported trading volumes of Bitcoin, the world’s most regulated and closely watched crypto asset, are not to be trusted, then the indicators of even smaller assets should be taken even more seriously -skeptical. At best, trading volume is one of the most measurable signs of investor interest, but it can easily be manipulated to convince novice investors that there is much greater demand than there actually is.”

“Binance remains the big one in the room. Even after a 45% discount to its volume, Binance still generates the equivalent of 27.3% of all ‘real’ trading volume. No other crypto exchange can match its market cap power, and has been for the past two years. While Binance says all the right things about cooperating with regulators — it has begun obtaining licenses around the world and promises to announce a global headquarters — questions remain about its operational controls. Unless regulators feel comfortable with Binance’s legitimacy, it may be hard to imagine a spot ETF being approved any time soon.”

“Tether remains ‘Too Big to Fail’ – for now: This study raises more questions about the true use and value of two of the largest stablecoins – USDT and BUSD. Say what you will about Tether, but people are have found it suitable for the product market to a large extent. But that is precisely the problem in the minds of many so-called Tether Truthers who do not believe that the $68 billion is actually backed by reserves. It is hard to imagine what would happen to markets if traders stop trusting tether – there is little evidence that this is happening – and none of its competitors want to take its place.”

Areas for Future Research

The role of stablecoins in market manipulation.
“There is no evidence that tether-based trading pairs are more prone to fraud than other assets. However, this area is worth investigating further, especially if tether starts to deviate from its fixed $1 again or other algorithmic stablecoins start to gain traction in trading in a large spot market A seemingly stable underlying asset that has higher than expected volatility, can always lead to both legitimate opportunities for arbitrage and opportunities for fraud.”

The potential for perpetual futures to be manipulated.
“Through this research, including first-person interviews with direct market participants, no evidence is discernible , that perpetual futures are more prone to wash trading and other forms of manipulation than conventional futures or spot contracts. However, given the relatively new nature of this product (it was created in 2016) as well as its dominance in crypto trading, it deserves to be explored further.”

The Future of DEXS in Market Manipulation.
“This report does not focus on Decentralized Exchanges (DEX), largely due to the fact that they are not major players in trading By contrast, when it comes to spot markets, most of the big players have broken away from large centralized exchanges, specializing in new ways to provide liquidity in assets that are not financially viable for many traditional exchanges. However DEX market share is slowly rising to that of spot – there are even days when Uniswap, the largest DEX, has more trading volume than Coinbase.”

“The Bitcoin Trading Volume Discount Rate Study follows this series.”

Regulation. Identifying the crypto licenses and which regulatory authority each exchange holds and using this as a proxy to gauge their level of sophistication and intent to deter wash trading and the publication of fake volume.”

Third party input. Selected third party work reviewed such as volume data from CoinMarketCap, CoinGecko, Nomics and Messari. Messari’s volume statistics are less extensive in pairs and have fewer exchanges than its peers, but has its own calculations of real volume.The study tracked in recent months how Messari applied a volume discount rate ranging from 40% to 65% to Binance’s volume compared to averages. reported by CoinMarketCap, CoinGecko, and Nomics at the time. Messari also reduced FTX’s trading volume by a smaller percentage (less than 20%), and Kraken’s by 99%. Regarding the latter, the study did not share the opinion of applying a large discount rate to a company that is among the most regulated crypto exchanges in the world. However, most exchanges passing Messari’s real volume analysis do not have any kind of volume discount rate.”

Web Traffic. The study uses third-party data from web analytics firm SimilarWeb to significantly reduce the volume of businesses that claim high trading volume without having enough crypto licenses and web traffic to generate such volume.”

Source: Forbes

 Dealer Anatoliy Pavlov

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