Are Crypto's High Trading Volumes A Scam?

Not surprisingly, the measurement of trading successful cryptocurrencies tends to soar arsenic their prices rise, with caller investors heap in, creating a feeding frenzy. But fixed their comparatively abbreviated existence, cryptocurrencies negociate to rack up trading volumes that would beryllium the envy of a multinational corporation.

In precocious July 2021, arsenic the terms of a bitcoin (BTC) reached $40,000, trading measurement deed $9.2 billion. That marked a rebound successful some terms and volume. Daily mean measurement had been trending beneath $2 cardinal for months, starting to ascent lone successful precocious November 2020.

By mode of contrast, the trading measurement for General Electric Company (GE), which became a listed institution successful 1962, averages astir 5.6 cardinal shares a day, adding up to astir $560 million.

The main beneficiaries of precocious trading volumes are the cryptocurrency exchanges, which rake successful trading fees connected transactions.

But there's a occupation here: Some cryptocurrency exchanges person been faking their measurement numbers successful bid to rise the visibility of their businesses and bring successful much customers. That's casual to bash successful the less-than-transparent satellite of planetary crypto trading.

Now, an effort is underway to unit the exchanges to study existent numbers. That run is being led by the fiscal media and websites that screen cryptocurrencies, astatine slightest immoderate of whom person been duped by mendacious measurement numbers reported by crypto exchanges.

How Crypto Sites Can Fake Volume

Coindesk reports that a Moscow State College sophomore acceptable up a concern helping obscure crypto exchanges fake large trading volume. He achieved this by mounting up aggregate accounts connected an speech and utilizing bots to commercialized perpetually betwixt the accounts.

The extremity is to fake capable trading measurement to get the exchanges connected the lists tracked by the wide followed CoinMarketCap website, frankincense gaining the attraction of existent crypto investors.

Coindesk's report, successful July 2019, indicated that this Russian kid's concern was lone 1 of a fig astir the satellite that assistance fledgling exchanges "fake it until you marque it."

Trading Incentives

A Bloomberg study pointed retired anomalies successful Singapore-based cryptocurrency speech Bitforex’s trading volume. The speech has an inducement programme linked to the transaction fees charged by the speech for users.

The Transaction mining programme offers users $1.20 successful integer tokens for each $1 they walk successful transaction fees. Several users had aggregate accounts connected the level and utilized bots to summation trading measurement betwixt their accounts and gain tons of tokens.

The transaction is simply a profitable 1 if the distributed tokens summation successful value.

Such trades are known arsenic lavation trades and the U.S. Justice Department has already opened an probe into cryptocurrency exchanges progressive successful the practice.

The different reddish emblem for Bloomberg is the lack of a correlation betwixt the fig of website visits and trading volumes.

Cryptocurrency exchanges with fewer website visits are reporting trading volumes that tally into billions of dollars. According to Bloomberg, 40% of trades astatine the apical 30 exchanges ranked by Coin Market Cap travel from 8 venues with the highest measurement to visits ratio.

Why Trading Volumes Matter

Large trading volumes astatine crypto exchanges service 2 purposes.

First, they assistance debar drastic terms question successful a cryptocurrency’s terms aft a important sale. This is the payment of liquidity, a origin valued by astir investors.

Second, they are testaments to the trustworthiness of a cryptocurrency level and indicators of idiosyncratic spot successful an incipient manufacture that has zoomed into mainstream absorption connected the backmost of scandals and scams.

Trading volumes are besides important indicators of terms movement: an summation successful trading measurement is mostly considered a precursor to a large terms move. 

An Ongoing Problem

This is not the archetypal clip that cryptocurrency exchanges person been accused of fabricating trading measurement figures. In a station successful 2018, trader and capitalist Sylvain Ribes recovered that OKEx, a China-based speech that had among the highest trading volumes, had tremendous slippage erstwhile a merchantability of cryptos worthy $50,000 was made. The results were akin erstwhile helium revised the trading magnitude to $20,000. Ribes concluded that astir 93% of OKEx’s measurement was fabricated.

Experiments astatine different cryptocurrency exchanges revealed akin information points. At Huobi, different large China-based exchange, helium estimated that 81.2% of trading measurement was fake. HitBTC and Binance, which is arguably the biggest crypto trading platform, showed a likewise ample slippage amount. 

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