MIAMI, FLORIDA – APRIL 8: A bitcoin logo is seen during the Bitcoin 2022 Conference at Miami Beach … [+]
The crypto bleed-out continues.
Over the past week, the bitcoin price shed 6.2% of its value, hitting a low of just over $20,000. Altcoins are bleeding too. Ethereum’s price fell 4.1%, Cardano
Meanwhile, some crypto numbers you see every day aren’t as real as you might think.
There have long been concerns over the accuracy of crypto data due to lack of standardized reporting and regulation, but there wasn’t that much insight into how bad it is. Well, until now.
Javier Pax, director of data and analytics at Forbes’ digital assets arm, scrutinized 157 crypto exchanges and found an extreme mismatch between reported and actual bitcoin trading data.
Long story short, his analysis estimated that over half of all bitcoin trades are either wash trading or just fake:
“More than half of all reported trading volume is likely to be fake or non-economic. Forbes estimates the global daily bitcoin volume for the industry was $128 billion on June 14. That is 51% less than the $262 billion one would get by taking the sum of self-reported volume from multiple sources.”
What’s happening here?
Zooming out
There are two culprits to blame for this stark discrepancy in crypto data.
First and most obvious, unregulated exchanges that are straight up faking trading volume data.
That has to do with the fact that many crypto websites rank exchanges based on sheer trading volume. So, sprucing up volume figures here and there is a tempting shortcut that can instantly give them more visibility and bring in more customers.
This malpractice came into the spotlight in 2019 when Bitwise Asset Management revealed that 95% of trading volumes reported by exchanges on CoinMarketCap—the world’s #1 crypto data website—were fake.
And the smaller the exchange, the more drastic figure massaging typically is. Pax’s investigation found the biggest data discrepancies were among less-known and smaller exchanges. Their actual volumes turned out, get this, 80-99% lower than reported. Which means such exchanges are faking nearly all their bitcoin trades.
The second culprit is whale investors who open then immediately close their positions for no economic reason. In industry jargon, it’s called wash trading. It’s an illegal practice that big-pocketed traders exploit to create a false impression of demand and manipulate markets, which can be extremely effective in pump and dump schemes.
Looking ahead
Pax’s analysis covers just bitcoin. So on one hand, it doesn’t tell us much about the whole crypto market. On the other, it does.
If there‘s so much fake data around such a reputable cryptocurrency, you don’t need much imagination to realize how much of the data is made up in smaller cryptocurrencies; the data that many investors take at face value.
The takeaway?
As long as the crypto market is so unregulated, take all crypto data with a big grain of salt. Because, apparently, the crypto you proudly hold or the exchange you entrusted it with may be as liquid as a rock.
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