Bitcoin Trading Volume Review: Website Dedicated to Fake Crypto Exchange Activity by Bitwise

According to Bitwise’s report to the SEC, 95% of the Bitcoin trading volumes reported by cryptocurrency exchanges were of a non-economic nature or fake. The Bitwise report was part of its application process for its proposed bitcoin exchange-traded fund (ETF).

Bitwise conducted its research and analysis using data from 81 exchanges that had reported more than $1millon of daily trading volumes as per the data on CoinMarketCap

On the report, Bitwise highlights,

“Despite its widespread use, the CoinMarketCap.com data is wrong. It includes a large amount of fake and or non-economic trading volume, thereby giving a fundamentally mistaken impression of the true size and nature of the bitcoin market.”

Wrong Reports On Bitcoin Trading Volume

Currently, CoinMarketCap reports that Bitcoin’s trading volume is average $6 billion per day. However, the report from Bitwise that features 226 slides breaking down data from exchanges claims that the actual trading volume is around $273 million or 4.5% of the amount reported by CoinMarketCap.

Bitwise used various data-driven tests as assessment methods to determine whether the volume on an exchange is fake. The tools included identifying exchanges with large trading blocks as well as those that have equal volume spikes, which are attributed to all the trades being on the same market.

In addition to identifying exchanges that inflate their trading volumes, Bitwise reports that of the 81 exchanges analyzed, only 10 of them provide legitimate trading volumes. These exchanges include Binance, Coinbase, Kraken, Gemini, and Bittrex.

Not Positive For The Industry

Several analysts have made their remarks on the report and its implications in the industry.

For instance, Tim Enneking, the managing director of Digital Capital Management stated,

“If true, it's clearly not a positive for the industry.”

He continued to highlight some of the reasons these exchanges can fake their volume,

“Other than simply wanting to make volume appear larger than it is for commercial, three other factors may play into the motivations behind exaggerating volume: (1) the generalized decline in volume over the last 12 months or so, which makes appearing to be larger both more important and more difficult, (2) the growing volume on OTC platforms, which both exacerbates and accelerates the first problem, and (3) the seemingly endless proliferation of new exchanges, meaning that more players are fighting for larger pieces of a shrinking pie.”

In Support Of The Report

Other industry players have also come out to support the report and its finding.

Jeremy Allaire, the Co-founder, and CEO of Circle praised the report through a tweet that read,

“Great work from @BitwiseInvest helping the market understand what’s real and what’s fake. If we want crypto capital markets to go mainstream we need data investors can believe in.”

Nevertheless, the report states that the Bitcoin market is still resistant to market manipulation because it’s structured in a way that unregulated cryptocurrency exchanges cannot control the coin market.

“We have demonstrated that the bitcoin market is an extremely well-arbitraged market, with a proven ability to ignore outlier prices, and that both the fundamental market structure and our specific NAV calculation methodology provide unique protections against potential efforts to manipulate that market,”

the report stated.