Fake Volume on Exchanges Giving Crypto a Bad Name

After almost a decade, most people have come to understand that cryptocurrencies have uses beyond money laundering and buying drugs on the internet.

Views on cryptocurrencies have generally become more positive after they went mainstream in 2017. However, there are still some practices in the ecosystem that would give skeptics reason to avoid participation in the cryptocurrency community.

It turns out that some up and coming cryptocurrency exchanges that report trading volumes worth billions of dollars are churning out false figures.

Crypto Exchange Ranks Investigates BitForex

There have been a number of reports exposing the falsification of figures and other bad business practices of some recently established exchanges.

One of these reports concerns CryptoExchangeRanks (CER), a site which provides real-time data on cryptocurrencies. Cyber security, arbitrage view and public opinion on the various exchanges are also among the areas covered by CER.

A month ago, CER investigated BitForex exchange for exaggeration of trading volume figures. This was after coinmarketcap listed BitForex as the 7th ranked cryptocurrency exchange by daily traded volume on 15th July 2018.

This drew some suspicion since the list placed BitForex, a relatively new exchange, far ahead of older and well-known exchanges in the ecosystem. Bitforex was reported to have traded $200 million while the better-known Kraken exchange, which has been in existence for years, recorded $27 million.

This was not enough to draw conclusions since Binance, a 1-year old exchange, has demonstrated that a lot of progress can be made in the cryptocurrency space within a short period.

The investigation involved a comparison of the traffic received by BitForex’ website and more popular exchanges like Kraken and Kucoin.

Analysis of the traffic statistics of Bitforex on Similar Web showed that the exchange’s website had about 60,000 unique users. This number was found to be much less than that of Kucoin and Kraken, which were ranked far lower in terms of volume.

Kucoin and Kraken registered 889,000 and 666,000 unique visitors respectively. It was highly improbable that Kraken, with 666,000 unique users, traded $27 million while at the same time BitForex traded $200 million with just 60,000 unique users.

For this to be possible, the users on BitForex would have to trade at least tens of thousands of dollars each on a daily basis.

Additionally, CER took a look at the social media platforms of BitForex and other exchanges.

Once again, when it came to level of activity and community engagement, BitForex fell short in comparison with other exchanges that reported lower volumes.

Now, while Binance did indeed progress from a new exchange to one of the world’s top exchanges in a short period, unlike BitForex, Binance has a large following as well as social media presence to go with their reported figures.

The Binance subreddit, for instance, is swelling with mostly content customers. Similarly, Coinbase, another top exchange, is run by high profile figures and also boasts a large twitter following.

Based on the findings, it seemed evident to the authors of the report that BitForex was reporting false figures to the general public - something the authors attribute to a desire for the new exchange to quickly gain legitimacy and expand its user base.

Wash Trading and Similar Malpractices

This is not the first time cryptocurrency exchanges have been called out for bad practices.

Coinbase was heavily criticized for launching support for Bitcoin Cash with little warning and prior to the announced date.

At the height of the previous cryptocurrency bull market, coinmarketcap.com had to exclude Korean exchanges from their calculation of prices as a result of suspicions of wash trading.

Since some of the major South Korean exchanges operated without charging transaction fees, there was no disincentive to users trading with themselves to manipulate prices of tokens and coins. This was also the case with Chinese exchanges prior to the September 2017 ban.

Policing the Crypto Space

What we can take from this is that the cryptocurrency space is still in its infancy and thus figures put out by any centralized entity must be taken with a pinch of salt.

In addition to the activism of cryptocurrency community members, we need more entities like CryptoExchangeRanks to act as a check on such practices and help the crypto-economy gain legitimacy in the eyes of both traditional finance and the broader world.


Crypto Trading Volumes Plummet in June, CryptoCompare Report Shows

Cryptocurrency trading volumes plummeted in June to “roughly half of the daily volumes” seen in May, according to the CryptoCompare June 2020 Exchange review report.

The report found that top-tier cryptocurrency exchanges, those with a high ranking on CryptoCompare’s Exchange Benchmark,  saw their trading volumes saw their spot trading volumes drop by 36% last month to $177 billion, while lower-tier cryptoassets exchanges saw their trading volumes drop by 53% to $466 billion.

unnamed.pngSource: CryptoCompare

CryptoCompare notes that last month the highest recorded trading volume in a single day on top-tier exchanges was of $9.26 billion. In comparison, in March’s Exchange Review, the cryptoassets data provider revealed that the March 12-13 crypto market crash led to high in daily trading volumes, as $75.9 billion were traded across exchanges in a single day. Top-tier exchanges traded $21.6 billion that day.

It’s worth noting that the spot volumes did not hit an all-time high, even during the March market crash. In July 2019 and December 2017, when the price of bitcoin hit its all-time high near $20,000, spot volumes hit record highs.

In June, cryptoassets trading platforms charging traditional taker fees represented 76% of the total exchange volumes, while those implementing the tans-fee mining (TFM) model represented less than 23% of the cryptocurrency space’s spot volume.

Fee-charging exchanges, the report adds, traded a total of $455 billion in June, as their trading volume dropped 48% since May. Trading platforms using the trans-fee mining model saw their volumes drop 45% since May, as they traded $141 billion.

Exchanges using the TFM model are seemingly gaining market share. While in March they represented less than 20% of the spot trading volume, in June their market share was of 23%.  As CryptoGlobe reported, these trading platforms often have unusually thin order books and low traffic.

FCoin, the cryptocurrency exchanges that started using TFM, has passed trading and withdrawals earlier this year over the shortage of crypto worth up to $130 million. The firm’s founder revealed that the platform was not hacked, but instead an internal system error gave users more rewards than they should have received.

Featured image by Austin Distel on Unsplash.