Bitwise Asset Management, a cryptocurrency index fund provider reports its data to the United States Securities and Exchange Commission (SEC), along with claims that 95 percent of volume on unregulated exchanges are purportedly fake or non-economic in nature
The said report, dated March 20 by Bitwise was a part of its proposed rule change for its application to launch a Bitcoin (BTC) Exchange Traded Fund (ETF). Bitwise starts off the analysis with an argument that while an ostensible ~$6 billion in daily traded volume for Bitcoin is reported across the spot markets:
“Under the hood the exchanges that report the highest volumes are unrecognizable. The vast majority of this reported volume is fake and/or non-economic wash trading.”
While Bitwise sources its data CoinMarketCap (CMC), a widely-cited crypto statistics tracker, the firm also went on to claim that the said site includes a large amount of this suspect data, “thereby giving a fundamentally mistaken impression” of the true size of the Bitcoin market.
As per Bitwise, roughly 95 percent of the reported volume is fake, which implies that the real market for BTC is “significantly smaller, more orderly, and more regulated than commonly understood” — amounting in reality to $273 million.
Firstly, Bitwise analyzes regulated exchanges by using Coinbase Pro as a case study, to reveal the nature of the trading patterns it deems to be trustworthy. Reportedly, the key characteristics include an “unequal and streaky” mix of red (sell orders) and green (buy orders) trades, whose distribution fluctuates considerably at any given time.
Furthermore, the report argues that the trading patterns on Coinbase Pro reveal “a greater-than-random number of round trade sizes,” characterized as “more natural,” typically human behavior. Bitwise also analyzes spread as a parameter, noting that:
“It’s [the spread is] $0.01. At the time this screenshot was taken, bitcoin was trading at $3,419. That means bitcoin was trading at a 0.0003% spread, making it amongst the tightest quoted spread of any financial instrument in the world.”
Coinbase Pro reports around $27 million in the daily traded volume of BTC, compared with $480 million reported by Coinbene at the time of Bitwise’s analysis. Bitwise is using Coinbene to demonstrate the patterns typical of what it characterizes as “suspicious exchanges.”
The implausibly perfect alternating pattern of green and red trades is amongst the key suspect signs, in addition to the lack of round number or small value trades. The buy and sell orders on Coinbene also appear in timestamped pairs, with one conveniently offsetting the other.
Further, Coinbene’s spread at the time of Bitwise’s analysis was $34.74:
“that compares to $0.01 on Coinbase Pro. It is surprising that an exchange claiming 18x more volume than Coinbase Pro would have a spread that is 3400x larger.”
The suspected exchanges also reportedly demonstrate consistent volume 24-hours a day, instead of regulated exchanges, where volume corresponds to waking and sleeping hours.
In the Bitwise’s concludes that its overall findings, “demonstrate that this ETF application [for its Bitwise Bitcoin ETF Trust] meets both” conditions laid down by the SEC for how a BTC ETF could satisfy the requirements of the Exchange Act.
A similar analysis was also reported by new research from trading analytics platform The Tie, this week. The platform proposed that almost 90 percent of crypto exchanges’ reported trade volumes across all supported cryptocurrencies were false.
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