95% of Cryptocurrency Volumes is Fake

95% of Cryptocurrency Volumes is Fake

If you have been trading on a cryptocurrency exchange, you might have noticed how these platforms work. Buyers and sellers come together to exchange their favourite coins, in hopes of making a profit. The total volume of those transactions determines the popularity of an exchange, as well as the liquidity of cryptocurrencies.

For the longest time, the public used reported daily volumes of exchanges to determine the quality of an exchange and, as an extension of that, the best option to exchange cryptos quickly.

However, one strange thing started to happen as cryptocurrencies became more popular. The exchanges with the highest volumes were relatively unheard of and, in some cases, completely unknown.

This confused many market participants. How can an exchange with only 2000 Facebook fans and a quiet Telegram group have 3x more volume than Bitfinex?

And how can those same exchanges not create any liquidity for new coins, even though they report such massive numbers?

Long and behold, Bitwise launched an investigation to explore the causes of this issue. A short while later, in a 104-pager, they shared their findings with the world.

Most reported volumes are fake

According to the research performed, many cryptocurrency exchanges were artificially inflating their reported volumes. In fact, the numbers were so highly inflated that it is assumed that about 95% of the total volume is actually non-existent.

Why does this happen? Well, according to the same paper, it happens in order to increase the exchanges’ market position and make more profit on new coin listings. This, of course, makes it hard for new market participants to trust exchanges.

The logical thing to do then, is find platforms that you can actually trust. Exchanges that report real volumes, coherent with the activity of their users.

Paybis has created a helpful infographic to help you understand which platforms you can actually trust. Check the following infographic to better understand the findings of Bitwise.

fake-volume-infographic

As you may have imagined, the news was unpleasant for most crypto-enthusiasts. In fact, the community demanded answers from CoinMarketCap. The company that got recently acquired by Binance tackled this issue by introducing a Liquidity metric. Based on this, users are better able to distinguish between honest and “scammy” exchange platforms.

After its acquisition by Binance, the Reported Volumes metric also got a pleasant refresh. Volumes now look a lot more realistic and in line with the actual volumes being made on a daily basis.

Where do we go from here?

Cryptocurrencies, as a market, are still in their infancy. Thankfully, as the space keeps improving, so do the metrics of data collection. As such, it is expected the following year will completely eliminate irrelevant platforms that offer now value to the space.

Moreover, many new FIAT on-ramps for different countries are appearing on the market. We expect that this effort will continue and, eventually, increase the standard of requirements for the proper operation of exchange platforms.

By all means, the cryptocurrency space looks massively different than what it did two years ago. And with companies like Bitwise analyzing the market and helping its growth, we are more than confident about the next 2-5 years.

Open your free digital wallet here to store your cryptocurrencies in a safe place.

Satoshi
Satoshi

One thought on “95% of Cryptocurrency Volumes is Fake

John TrainingPosted on  4:26 pm - May 14, 2020

Thanks for sharing.

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