San Francisco based Bitwise Asset Management said in a report that 95% of all Bitcoin trading volumes in unregulated exchanges are completely made up.
Coinmarketcap is one of the most widely used sources of Bitcoin trading volume and data and it reports around $6 billion per day of Bitcoin trading volume. However, it appears that only $273 million or 4.5% of the reported trading volume is real, while the rest of it is fake.
Despite being a popular source of Bitcoin trading data, Coinmarketcap seems to be reporting a large amount of fake and non-economic trading volume. It gives an artificially inflated impression of the true size and nature of the Bitcoin market to investors, regulators, and other stakeholder groups.
The findings illustrated how unregulated exchanges like CoinBene inflate trading volume compared to regulated exchange like Coinbase. However, if we take look at how the trading volume adds up by analyzing CoinBene’s order book, it clearly shows how its trades print inside the prevailing bid and ask parameters to inflate the volume. It’s worth noting that Cryptopotato reported on another wash trading research back in December. The two studies overlap in their findings on CoinBene, as the one from December showed that only about 1% of the trading volume on the exchange is actually real.
One of the fascinating aspects of the whole thing is how high the trading spreads are at some of these unregulated “high volume” Bitcoin exchanges. For example, CoinBene’s Bitcoin price and the spread between the bid and ask price remains pretty high during the report’s study period, at $34.74. At the same time, Coinbase Pro’s spread was only $0.01.
The problem is that CoinBene claimed to have 18x more trading volume than Coinbase Pro. So, its spread should have been much lower as heavy trading and frequent transactions would have naturally lowered the spreads. However, in reality, CoinBene’s spreads remained 3400x higher than Coinbase Pro.
If Coinmarketcap’s reported trading volume is real, it would suggest that 8.6% of all bitcoin was changing hands every day.
By discounting the “fake volume” of unregulated exchanges, if we only count the real trading volume of the 10 regulated exchanges that make up most of that volume, it would be easy to draw a rational conclusion that the Bitcoin trading scene in the U.S. is much more organized and follows the rules of economics.
The aim of the study conducted by Bitwise was mainly to prove that the Bitcoin market is more orderly and efficient than it is commonly understood. With this comprehensive report, Bitwise hopes to convince the regulators, especially the U.S. Securities and Exchange Commission (SEC), that Bitcoin is just like any other commodity. If its attempt to convince the SEC is to bear any fruit, it will likely move forward to approve the heavily sought-after Bitcoin ETF.
Regardless of the commercial implications of the study, Bitwise has demonstrated that investors can still treat Bitcoin as a commodity and add it to their portfolio to substitute other non-cash flow assets such as Gold or Silver.