Binance CEO Changpeng Zhao says there’s a simple reason why Bitcoin and crypto exchanges are faking volume.
Cryptocurrency index and beta fund provider Bitwise dropped a bombshell report on Wednesday that finds 95% of volume on unregulated crypto exchanges is likely fake. Bitwise is currently seeking approval for a Bitcoin exchange-traded fund proposal, and submitted the report to the US Securities and Exchange Commission.
According to Bitwise, the vast majority of reported crypto exchange volume is “fake and/or non-economic in nature… the real market for bitcoin is significantly smaller, more orderly, and more regulated than commonly understood.”
When comparing order books on Coinbase Pro to a long list of other exchanges, Bitwise says it identified a number of suspicious trading patterns. In particular, the report highlights exchanges that seem to have buy and sell orders placed in perfect succession: one buy order, one sell order, one buy order, and so on.
“Compare this to Coinbase Pro, where we saw a more random distribution of buying and selling activity. It’s highly unlikely that there is a perfect, even distribution of economic buy and sell orders.”
According to Zhao, exchanges are faking trading volume in order to obtain a high standing on CoinMarketCap (CMC), which maintains a public ranking of all crypto exchanges by volume. Exposure on CMC drives traffic and business.
Why do exchanges fake volumes? @CoinMarketCap is highest traffic website in our space, and biggest referrer for all exchanges. Ranked high on CMC has benefits for getting new users. BUT at the expense of DESTROYING CREDIBILITY with pro users. Many forget the later part. https://t.co/XTSez5ZRVh
— CZ Binance (@cz_binance) March 19, 2019
Zhao says CMC brings more referral traffic to Binance than any other site. This makes sense, considering CMC is arguably the biggest website in crypto, ranked as the 448th biggest site in the world, according to web analytics site Alexa. It also ranks highly in countries with national currencies that account for the biggest Bitcoin trading volumes: the US and Japan.
CoinMarketCap Alexa ranking
Matt Hougan, the head of research at Bitwise, told CoinDesk he believes the company’s report won’t have a negative impact on the company’s push for a Bitcoin ETF approval. According to Hougan, the new report actually proves that the real and foundational crypto market is “uniquely resistant to manipulation.”
“The reality is that the fact that there is fake volume in the crypto market is not news. We are just the first firm we know of to take a truly comprehensive approach to proving and quantifying it. In addition, the regulated CME futures market is much more significant than most people think, because they have the denominator wrong.”
The SEC has until the end of the month to accept, reject or extend its review of the Bitcoin ETF proposal from Bitwise.