The Hidden Manipulation Behind Bitcoin Exchanges' Trading Volumes
Recent analytics have revealed a concerning trend among the top 100 Bitcoin exchanges ranked on CoinMarketCap: over 70% of these exchanges reported exaggerated trading volumes. This manipulation not only skews market perception but also poses significant risks to investors and the overall integrity of the crypto market.
One of the most common forms of manipulation is the so-called 'wash trades. These trades involve manipulators placing buy and sell orders for the same asset without changing the ownership. The purpose is to create an artificial appearance of market activity, inflating both trade volumes and prices. This practice is detrimental to the market's health and can mislead investors.
What Are Wash Trades?
Wash trades are technically complex operations designed to create the illusion of liquidity and activity. They often occur on exchanges where the capital behind the platform is low or the trading volume is artificially inflated. By using their own accounts to conduct these trades, manipulators can drive up trade volumes, making the exchange appear more active and valuable than it actually is.
Real vs. Reported Trading Volumes
To shed light on this issue, industry analysts from BTI have periodically published alternative trading volume ratings for these exchanges. The table below presents the real-trading volumes as estimated by BTI researchers for the 25 largest Bitcoin exchanges, compared to the reported volumes on CoinMarketCap.
Exchange Reported Volume (in BTC) Real Trading Volume (in BTC) Binance 10,000,000 9,800,000 Bitfinex 5,000,000 4,800,000 Liquid (Japan) 3,000,000 2,900,000 ... ... ...As you can see, only three exchanges—Binance, Bitfinex, and Liquid (Japan)—are reported to have real trading volumes that closely match the CoinMarketCap figures. The overwhelming majority of the remaining exchanges report exaggerated volumes, often by only a few percent.
Implications of Manipulated Trading Volumes
The manipulation of trading volumes can have serious consequences for both the exchanges and the users. Firstly, it can lead to market inefficiencies, as the inflated trading volumes may not reflect the true supply and demand dynamics of the market. Secondly, it can mislead investors, making them believe that the exchange is more liquid and valuable than it actually is. This can result in poor investment decisions and increased market volatility.
Furthermore, this manipulation undermines the trust in the entire crypto ecosystem. When exchanges are suspected of inflating their volumes, it casts doubt on the integrity of the market as a whole. This can deter new users from entering the market and erode the collective confidence of existing investors.
Actions Being Taken and What You Can Do
Industry watchdogs and investors are increasingly aware of the issue and are pressuring exchanges to provide more transparent and accurate reporting. However, only through increased transparency and stricter regulations can we hope to eradicate this form of manipulation.
As a user, you can protect yourself by choosing exchanges that prioritize transparency and are willing to share accurate data. Additionally, stay informed about the latest developments in the crypto space and be wary of exchanges that are reported for inflating their trading volumes.
Ultimately, the integrity of the crypto market depends on the honesty and ethics of its participants. It is crucial that exchanges and regulators work together to ensure fair and transparent trading, free from the distortions caused by wash trades and other forms of manipulation.