According to the Blockchain Transparency Institute, much of the volume reported by crypto exchanges is likely to be completely fake. They have produced reports identifying that approximately 67% of the trading volume on the top 25 exchanges, is blatant market manipulation. This equates to over $6 billon per day!
It is reported that Binance, as well as Bittrex, are the only exchanges on the top 25 that are not faking volume.
As you can see from the chart below, many exchanges on the list reportedly fake 99% (or more) of their trading volume:
Source: CNN
Obviously this is a very tough thing to prove, and the reports are a product of speculation, however the researchers at the BTI have done their homework and the data they have combed through provided to be more than a little suspect.
Wash trading is defined as:
A cryptocurrency exchange simultaneously selling and buying the same coins to create misleading, artificial activity in the marketplace.
Short term, this may be very bad for the price of crypto, however long term, some seem to think that it could be beneficial, as exchanges who engage in this practice will not last long. They do it because they aren't making enough money, and once expenses outweigh profits, they will fold under the pressure and be forced to shut down.
Chintan Sheth, a quant researcher at SeedCX concluded, “I expect more consolidation going on with exchanges, with hundreds of exchanges out there, and massive volume reductions across the board from 2018, it makes sense why they’ve resorted to wash trading. It’s only a matter of time where they can’t keep up with expenses and they fold over, eventually you’ll have just actual flow.”
In other words, much of this reported wash trading activity is a last ditch effort by struggling exchanges to attract new customers with reports of higher than actual volume.
So what can we do about this? Using Bittrex or Binance for trades seems like one of the safest ways to go. You could also consider using a decentralized exchange, or DEX, which allows holders of crypto to exchange currency directly, without the need for a centralized authority that has the incentive to inflate volume.
Using a DEX also has the added benefit of allowing you to remain in control of the keys to your wallet, increasing security (by minimizing the threat of being hacked), but reducing convenience (because you will have to keep track of your keys). In the event of an airdrop you can also rest assured that you will receive your fair share. See below for examples of why holding your own keys is always a good move:
Source: https://coincenter.org/
I feel like we are currently in a time period for crypto that can be compared to the Wild West. There is very little regulation, and in many cases exchanges as well as other bad actors are free to do as they choose. I also do not think this is going to last. As time goes on I think we will begin to see less and less of this type of activity, and (unfortunately) pieces of legislation will also be introduced worldwide that limit the effectiveness and potential profits of crypto.
I suppose we should look out for the positive and make some money while we can.
Let me know in the comments your thoughts on this. I'd be interested to see if I'm in the minority or majority when it comes to opinions on this.
Thanks for taking the time to read my post. Cheers!
You can find the reports produced by the Blockchain Transparency Institute here:
https://www.blockchaintransparency.org/trading-advisory-list
Sources:
https://www.investinblockchain.com/cryptocurrency-wash-trading/
https://www.ccn.com/major-bitcoin-exchanges-accused-of-faking-volume-whos-trustworthy
https://coincenter.org/entry/what-is-a-decentralized-exchange