“Cryptocurrency market insights and community platform” Viewbase is analyzing wallet balances held by cryptocurrency exchanges to evaluate the accuracy of trading-volume figures reported by them.
Viewbase claims to have found, “a huge disparity between the Ether balances and the reported trading volumes by exchanges.”
“Reported versus adjusted volume” has long been a matter of controversy in crypto markets.
Last year, Coinmarketcap, a popular crypto market data website split the volume data it provides for the world’s top 100 exchanges into two categories: reported versus adjusted volume.
In many cases, the two lists are very different.
In March of this year, a comprehensive presentation submitted by Bitwise Asset Management to the SEC as part of its quest to list a Bitcoin ETF determined that 95% of total volume across most exchanges is fake.
In December 2018, two executives and an employee at the major Korean crypto trading platform UpBit were indicted for fraud for, “…inflat(ing) the volume of transactions by making 254 trillion won (or about $217 billion) in false orders,” on Upbit, Korea Herald and No Cut News reported.
The three allegedly conspired to place numerous fake crypto buy and sell orders over a period of two months last fall in order to inflate markets and attract more customers to the exchange.
Viewbase says it is tracking Ether and ERC-20 token balances at exchanges to cross-check reported volume:
“We have ranked exchanges by the amount of Ether deposited in their exchange wallets and compared it to their reported trading volumes…Ether is the second largest cryptocurrency by market cap and most exchanges offer Ether as a major trading pair against other altcoins. Hence we expect an exchange’s Ether balance to be reasonably proportional to its trading volumes.”
A wallet balance that contrasts too highly with reported volume figures, “…is classic sign of wash trading,” Viewbase concludes.
Despite high reported volumes by upstarts, “established players,” says Viewbase, including Kraken, Binance, Poloniex, Bitfinex, and Bittrex, “…are still maintaining their lead.”
“Newcomers,” Huobi, FCoin, and Kucoin, are also, “…making headway into the top rankings…”
But volume data from self-professed “top volume exchanges” Bitmax, Okex, HitBTC, and Coinbene, among others, appears to contrast with wallet balances scrutinized by Viewbase.
Viewbase attributes the “wide difference between reported trading volume and blockchain data,” to, “…several possibilities, ranging from bad to the worst case scenario”:
- “Algorithmic Trading Bots: …the most optimistic possibility. Market making algorithmic bots could be actively trading and competing among each other, generating high trading volume despite a lack of liquidity.”
- “Margin trading: Some exchanges such as FCoin offers leverage trading, which allows users to trade more than what they own by borrowing from the exchange.”
- “Lack of user trust: Users trade on the exchange but they do not trust the exchange enough to leave their funds in exchange wallets.”
- “Wash Trading: Traders or entities that control a large supply of crypto could be buying and selling to themselves to create a false illusion of buying activity.”
- “Outright Fabrication of Volume: This is the worst case scenario, but also the most likely one. New exchanges are reporting completely fake volumes out of thin air. There are strong incentives for them to fabricate their volumes as CoinMarketCap is a popular site for cryptocurrency traders and higher rankings can attract more users.”