Investigation Reveals Most Exchanges Fake Volume

If you use X Exchange and X Exchange tells you that they manage a total daily trade volume of one million dollars or even tens of millions of dollars, as a customer you might feel attracted to X Exchange.  If you are a new coin, you would probably feel very inclined to pay expensive fees in order to be listed in X Exchange because you imagine thousands and thousands of people who are supposedly affiliated to X Exchange that will extrapolate faith in X Exchange to faith in your coin.

All this is well known. However, one question remains. How do you know that X Exchange is actually managing that amount of daily trade volume in real transactions? How do you know that they’re telling the truth?

There exists an organism that investigates various kinds of irregularities in the Crypto-space, the Blockchain Transparency Institute (BTI).  This month, BTI published its “December Exchange Volumes Report”.  In it, the BTI analyzes in-depth the controversial issue of “wash-trading” that many people have been denouncing during the year 2018.  The results that the BTI present are overwhelming and extremely worrying.

First off, wash-trading is a practice that many exchanges may see as basic and as necessary to generate a social and commercial image for themselves. It is based on creating fake transactions i.e. transactions that are not between real clients of the exchange.  In many cases, the exchange has bots programmed to buy and sell among themselves.  An exchange bot can buy and sell cryptocurrencies to other exchange bots also.  Each of these transactions is then recorded as if it was a real trade among legitimate customers of the exchange.

BTI conducted this investigation based on a sample of 25 trading pairs and analyzed these pairs in most of the exchanges that are listed in ConMarketCap.  All transactions of these pairs were investigated for months, and for all those transactions only two Exchanges did not appear to be massively inflating their actual volume.  The two Exchanges that have passed the test are Binance and Bitfinex.

BTI used a specialized algorithm to calculate the real volume of each of the 25 main pairs studied.  A majority of the sample has been pairs with Bitcoin.  BTI obtained data suggesting that almost all of these pairs present a real volume of less than 1% of that which was reported in CoinMarketCap. That is, there is wash-trading conducted for up to 99% of the volume that the Exchanges report to CoinMarketCap.

The BTI investigation also found that almost all of OKEx’s top 30 traded tokens were dedicated to washing operations.  This is also true for most of the 25 main pairs in Huobi and HitBTC, though to a lesser extent. Another exchange that has been investigated is Bithumb.  Here, a high level of wash-trading was discovered in Monero, Dash, Bitcoin Gold and ZCash.

BTI currently maintains a list of the results of the investigation.  Individuals can access the list and verify the results for each exchange that participated in the investigation.  This type of research can represent a great step in the protection of the users of these exchanges, both the clients and the projects that list their currencies.  BTI advises all exchanges’ users to study these lists before doing business with the exchanges.

People who trade with currencies tend to believe in the data that the exchanges publish.  They have faith in these data and based on this faith, they make the decision to use the services of the exchange while believing that they have more security there.  Likewise, Crypto-projects feel greater faith and attraction towards exchanges that present a higher volume, because they hope to gain more exposure and followers.  In the case of Cryto-projects, they even pay ridiculously exaggerated fees to be listed in some exchanges.

As evidenced in the data of the BTI report, there are data from several months of research collected from August to November
2018.  A first stage was based on data from web browsers and a second stage in users of mobile browsers and other applications.

The report is being shared and studied by thousands and thousands of people in the Crypto community.  It is having a high impact and it is expected to help investors and projects take precautions when choosing their exchanges.  Manipulation and lack of transparency towards people have existed in many points of the Crypto sphere.  Exchanges have always been in the spotlight for many of their practices.  It is time for users to open their eyes and be more critical of the exchanges, pushing them to be honest and loyal.  Perhaps not all exchanges that exist now have the necessary merit to deserve to continue in the market.