Bitwise Submits Bitcoin Spot Market Report: The “Most Orderly & Efficient in the World” to SEC

  • Discrediting the popular misconception about Bitcoin spot market
  • Bitcoin real spot market & substantially larger regulated bitcoin futures market
  • Most important denomination in considering Bitcoin ETF: Regulated BTC futures volume accounts for 48% of the size of the spot market

New research by Bitwise Asset Management titled “Economic and Non-Economic Trading In Bitcoin” is exploring the real spot market of Bitcoin. This 104-page white paper is an expansion of March 2019 presentation that revealed there are only 10 exchanges with real Bitcoin trading volume.

The report that examines 83 exchanges for fake volume, the relationship of spot and CME futures and rabid arbitrage was submitted to the SEC on May 24th.

Bitcoin Real Spot Market & Substantially Larger Regulated Bitcoin Futures Market

Out of the 83 exchanges analyzed by Bitwise, 73 failed its test except for 10 exchanges viz. Binance that recorded the highest volume in April 2019 at $217 million, Bitfinex, Coinbase Pro, Kraken, Bitstamp, BitFlyer, Gemini, itBit, Bittrex, and Poloniex that registered the least amount of trading volume at above $4 million.

In a total of the average daily spot bitcoin volume, out of the $11 billion reported, $10.5 billion or about 95% is either fake volume or wash trading, states the report. These inflated volumes are through fraudulent printing, exchange-level wash trading by placing orders, paid third-party wash trading, fee-tier wash trading, and trade mining.

However, there likely is a gray area between exchanges with 100% real volume and exchanges with 100% fake volume and hence the true number is certainly higher.

It also means, after you remove the fake volume and fake data from the equation, you are left with an extremely efficient and orderly market and one that is backstopped by a regulated derivatives market of significant size.

Additionally, 31% of all reported volume takes place on exchanges domiciled in the U.S. market, with the remainder distributed amongst exchanges situated in the UK, Japan, Malta, and Hong Kong.

These real volume exchanges are substantially more regulated as nine of the ten exchanges are regulated by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) while six by the New York State Department of Financial Services under the BitLicense program.

Talking about Bitcoin ETF, the report says, the size of the regulated BTC futures markets is of critical importance here as it has been identified one of the factors in evaluating the listing a Bitcoin ETF proposal.

Moreover, to consider an ETF, the most important denomination is how does CME bitcoin futures volume look expressed as a percentage of bitcoin spot volume?

With the real Bitcoin spot market as a denominator, the regulated futures volume is much more important accounting for 48 percent of the size of the spot market in April and continues to be strong and steadily growing.

With this research, Bitwise tries to clear away the “bad data” and reveal the market as it really is today. The modern Bitcoin spot market is significantly smaller and more efficient than commonly understood.

The white paper concludes that the market is supported by increasingly effective regulation at the spot bitcoin exchange level that is among the “most orderly and efficient in the world” and backstopped by a significant and growing regulated bitcoin futures market.

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