In line with a recent official analysis ‘report‘ published by ‘Bitwise Asset Management’, 95% of volume on unregulated cryptocurrency exchanges seems to be faux or non-economic in nature.
Bitwise revealed its analysis and reported it to the U.S. SEC [Securities and Exchange Commission] as a part of a proposed rule amendment for its application to launch a Bitcoin [BTC] ETF [Exchange Traded Fund].
This analysis opens with the argument that around $6 Bln in daily transactional volume for Bitcoin is reported across the spot markets:
“Under the hood the exchanges that report the major volumes are unrecognisable. The overwhelming majority of this reported volume is faux and/or non-economic wash trading.”
Bitwise sources its information from the widely-cited cryptocurrency statistics tracker CoinMarketCap [CMC], that it claims includes a high amount of this suspect information, “thereby giving a basically mistaken impression” of the true size of the Bitcoin [BTC] market.
Bitwise outlined that roughly 95% of the reported volume is faux, while the real marketplace for Bitcoin is thus “significantly smaller, additional orderly, and more regulated than unremarkably understood”- amounting truly to around $273 Mln.
Regulated exchanges were analysed firstly – choosing Coinbase Pro as a case study – to reveal the character of the trading patterns it deems to be trust-worthy. Key characteristics reportedly embrace an “unequal and streaky” mixture of sell orders and buy orders trades, whose distribution fluctuates significantly at any given time.
The report additionally argues that the trading patterns on Coinbase Pro reveal “a greater-than-random range of round trade sizes,” that it characterizes as “more natural,” usually human behavior. Bitwise conjointly analyzes spread as a parameter, noting that:
“It’s [the spread is] $0.01 USD. At the time this screenshot was taken, Bitcoin [BTC] was trading at $3,419 USD which means Bitcoin [BTC] was trading at a 0.0003% spread, creating it amongst the tightest quoted spread of any monetary instrument within the world.”
Coinbase Pro reported around $27 Mln in daily transaction volume of Bitcoin [BTC] at the time of Bitwise’s analysis — as compared with $480 Mln reported by Coinbene. The latter is employed by Bitwise to demonstrate the patterns typical of what it characterizes as “suspicious exchanges.”
Suspect signs embrace an improbably good alternating pattern of selling and buying trades, and an absence of round number or small price trades. On Coinbene, buy and sell orders conjointly seemed in timestamped pairs, with one offsetting the another. Moreover, the spread on Coinbene at the time of Bitwise’ analysis was around $34.74 USD: “that if compares to $0.01 USD with Coinbae Pro, it’s really very stunning that an exchange claiming 18x additional volume than Coinbase Pro would have a spread that’s 3400x times larger.”
Suspect exchanges conjointly reportedly demonstrate consistent volume 24-hours-a-day, as opposite to regulated exchanges, where volume corresponds to the waking and sleeping hours.
Bitwise’s report concludes that its overall findings “demonstrate that this ETF application [for its Bitwise Bitcoin ETF Trust] meets both” of the SEC’s conditions for the way how a BTC/ETF could satisfy the needs of the Exchange Act.
As ‘reported‘ earlier this week, another analysis from trading analytics firm The Tie’ also proposed that nearly 90% of the total cryptocurrency exchanges reported trade volumes – of all supported cryptocurrencies – were false.