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New Report Warns 87 Percent of Cryptocurrency Exchange Volume Is Potentially Suspicious

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Almost 90 percent of cryptocurrency exchanges’ reported trade volumes may be incorrect, new research from trading analytics platform The Tie warned in a digest released on March 18.

Reporting on figures gathered from 97 exchanges, researchers found that the vast majority of the volume claimed to come from users may not in fact exist.

The revelations came as a result of calculations of lesser-known exchanges versus well-known businesses such as Binance and Kraken.

“In total, we estimated that 87% of exchanges reported trading volume was potentially suspicious and that 75% of exchanges had some form of suspicious activity occurring on them,” The Tie wrote in social media comments on the findings. The organization added:

    “If each exchange averaged the volume per visit of CoinbasePro, Gemini, Poloniex, Binance, and Kraken, we would expect the real trading volume among the largest 100 exchanges to equal $2.1 (billion) per day. Currently, that number is being reported as $15.9 (billion).”

Exchanges have often fielded accusations of volume misreporting: a similar reported issued in March 2018 warned of similar problems with data from exchanges.

Then, as now, Binance CEO Changpeng Zhao (CZ) took industry participants to task, arguing listing resources such as CoinMarketCap added to the confusion.

“Why do exchanges fake volumes?” he queried on Twitter following The Tie’s report. CZ also wrote:

    “(CoinMarketCap) is [the] highest traffic website in our space, and [the] 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.”

Zhang repeated similar claims about CoinMarketCap which appeared in December, focusing on the the top 25 Bitcoin (BTC) trading pairs.

Last month, meanwhile, Cointelegraph reported on how overall exchange volumes had dropped to their lowest levels since May 2017.


Reference: https://cointelegraph.com/news/new-report-warns-87-percent-of-cryptocurrency-exchange-volume-is-potentially-suspicious

What a completely nonsense report. If you follow the links through to the data they used here (https://docs.google.com/spreadsheets/d/13_L5V9elxQ3xps62BeYVyr_Wu-9vfyAyN5tGqLNoV9Y/edit#gid=1415549973), it is all over the place.

They calculated the average trading volume to be $591, but they don't say how the arrived at that number. Then then multiplied that number by the number of website visits for each exchange for per month, to arrive at an "expected volume" number. That has to be one of these least scientific methods I could possible imagine, and it shows in how wildly inaccurate some of their numbers are. They are suggesting, for example, that KuCoin's real trading volume is actually 1300% higher than what KuCoin are reporting. I can understand smaller exchanges falsely reporting higher volumes in an attempt to seem bigger, but what possible reason would KuCoin have to make themselves seem smaller and less significant than they are? Similar, they suggest that Poloniex is actually 930% higher and Bittrex are 430% than they are reporting.

They used a stupid method, and therefore got stupid results. No conclusions can be drawn from this report.

A great number of persons will not read, or understand, or care about the calculation method.
The fact that somebody made a "report" with this conclusion is enough. Then people will start referring to this news to prove that crypto is scam or whatever suits them best to be proven.
This is the next level of fake news.

This is by far the dumbest equation I have seen created in order to have some headline on their website. How can someone translate a website visit into becoming a official traded volume of an exchange without even factual evidence that the viewer have actually traded or even has an account to trade in? Are they actually confident or at least aware that their readers only read through the headlines and not the whole article that they made some shitty content based on a big assumption?

I could say the following:

similarweb.com states that Paypal.com had 500 million visits in the last 6 months, which is the same as 2.7 million per day.
Looking at the last 20 payments I've made with Paypal, my average transaction size is ~20 dollars.
Therefore, Paypal has a daily transaction value of (20 * 2.7 million) only $54 million, which is less than 10% of bitcoin's daily transaction value.
Bitcoin is 10 times bigger than Paypal.

What I've said is clearly nonsense, but it also follows the exact same method as in this "article".

Tell us something we don't know. :D

It used to be even worse. 3-4 years ago, the Chinese exchanges like Huobi were supposedly doing millions of BTC in daily volume. It was laughable. Traders thought it was hilarious because it was so unbelievable.

Lots of exchanges are still doing this today, just a bit more subtly.


I'm not so confident the "well-known businesses" are being honest either.

I did not do any deep thinking about the article, nor am I a statistician, but none of what you wrote would surprise me.  This is why I don't give any credence to what I read from any news source--and not just the mainstream media.  On a very much related note, the science behind the new Jack the Ripper discovery is apparently so shaky that there's been an outcry amongst forensic scientists and others, and yet the media is hyping the story anyway.

And OP, I know I've suggested this before:  please don't include useless, gigantic pictures in threads you start.  They don't add anything to your posts.  The link to the article is appreciated, at least from my end.  Though this seems to be a bogus conclusion, this is the only website where I get any crypto news, and the discussions about these links are usually pretty good.

I thought everyone knew this.

Most of the exchanges up top on Coinmarketcap are blatantly faking pretty much all of their volume. They come out of nowhere and suddenly massively outgun exchanges that have been around for years that real traders trust in a matter of weeks.

I expect volume that isn't fiction is 20% or much, much less of that reported on CMC.

lol, CZ is the king of volume manipulation---just look into his history as the architect of okcoin's trading back end. he helped destroy the credibility of the entire market while okcoin/huobi were shitting all over the market with fake volume. and tbh nobody with a brain can fully believe binance's volume numbers given their (lack of) liquidity either.

every exchange in this industry is shady as hell. some more than others, and some are better at hiding it, but that's all. what CZ is saying about CMC is true, but it's just too funny to see him on his high horse about volume manipulation of all issues. that takes some boldness!

As @o_e_l_e_o mentioned the way they counted that is hilarious but fake volume and fake traffic are visible with naked eye and harms whole market.

That's the video I've made on UEX exchange. Same thing I've seen on many others. Order is being fulfilled instantly as long as it's not mine order.

https://vimeo.com/325609464

I wouldn't be shocked, volume is what attract customers in exchanges. If binance suddenly dropped to one million dollars volume a day, would you continue using it? If they were always like that would you start using them ? I think volume is the most important thing in exchanges to attract customers, the first thing any trader looks at any exchange is the volume.

Also, another topic the volume basically decides on what a company makes on profit, so if a company has like a volume bot that is making their volume look bigger and bigger that means it also looks like they make more and more money, which really helps out in many cases like for example on coinbase for them to get funded by investors and open more places so they could get bigger and eventually don't even need the volume bot one day.

there is no way you could ever measure the real volume on exchanges specially with such accuracy so that you come up with a number such as "87" and not 90, 80 or a round thing like that!!! 87% is another reason why this is pure bullshit by someone who was bored with the market and wanted to start something up again.

the fact is that we all know exchanges fake their volume most of them for competition, some others for manipulation reason.... but in most cases (specially the big ones) the fake volume is far less than what this newbie author thinks. it probably is not even bigger than 10% in worst case scenario. of course there are shitty exchanges like yobit which have probably 99% fake volume but those places are so bad that they are not even worth talking about specially in an statistics.

Absolutely volume is important, and without a doubt many exchanges report fake volume to make themselves appear bigger than they are. However, the methodology on this report is utter nonsense, and you would be very naive to be drawing any conclusions from it. Sure, it says a bunch of small exchanges, most of which I've never heard of, are drastically over reporting their volume (which I can believe), but it also says big exchanges like KuCoin, Poloniex, Bittrex, Coinbase and Kraken are all under reporting theirs, some by a factor of 10, which makes no sense whatsoever.

I had assumed most people ignore the 24 hour volumes for both exchanges and coins.

As if most people don't know about this already. The Chinese exchanges were the most notorious platforms when it comes to faking volumes. Not that I'm generalizing it but just look at the orders and market depth at a given time and look at their stats on their own site and CMC. Since 2016, people knew about OKCoin's practice of manipulating displayed volume in order to get a lot of customers into thinking that liquidity is darn buttery-smooth in there, but apparently it isn't.

I mean at this day and age, what exchange do you expect to not fake the volumes anyway? Everyone did it at some point in time.

Here we go:

https://www.forbes.com/sites/billybambrough/2019/03/20/researchers-issue-genuine-bitcoin-and-crypto-exchange-warning/#1cf64e3e1833

What is the proof ?
Hmmm, all I see is someone trying to carry FUD news again to the crypto space for a reason I don't know, I am very sure anyone who came up with this article don't own any coin and the person also posting this here because real coin holders won't spread FUD news because we want to see a bull run in the price of bitcoin and other crypto, and I am very sure that crypto market will experience a bull run this year irregardless of the FUD news we are going to see in the community because users are becoming tired of FUD, it might be true but it's not worth sharing because we already know.

Just because you disagree with a piece of news doesn't automatically make it FUD. Similarly, suggesting that anyone who shares such news is somehow anti-bitcoin or suppressing a bullrun is both wrong and dangerous. Bitcoin will never become mainstream if we try to shout down and silence every piece of bad news, and if a couple of pieces of bad news is enough to derail bitcoin then it's far weaker than any of us imagined.

This news is nonsense for the reasons I've outlined above, but simply writing it off (or any other story off) as FUD without addressing it first is not conducive to progress.

Wash trading is quite obvious. It happens on large scale. I am 100% sure. But they used strange system. I am positive it is far from being correct.  I do hope transparency institute that is doing this researches uses different way to figure out legit volume vs wash trading. 

I don't know if the genuine purpose of reading article was to create some FUDs in the market but  I believe what the article says is truth because it was something that occurred since the year 2016 and coin capital market was also accused of false information that year. However, i dont percentage of exchange with fake volume was actually 87% but I'm 100% sure that some exchange site does the fake volume thing.

i think it was made bigger than it really was. of course Chinese exchanges faked volume but i don't think they were doing it more than any other exchange. their volume was so much higher mainly because they didn't have any trading fees and we all know that when fee is zero you can make a lot more trades, even buy and sell to your own orders as a whale to fake things without costing anything so the volume grows ridiculously big without being faked by the exchange.

Once it was being stated that the fake volume by Chinese exchanges seems to be the reason for the sudden price increase. By that time with the intervention of People's Bank of China a big inspection is done upon the exchange trading system. Soon after that there is drastic fall. Later the regulations were made strong, upon which this news doesn't seems to be right as most users mentioned.

Well, the operators of the exchanges know better, only them knows the truth being an insider no matter the amount of analysis out there but I really don’t doubt the report, most of them are definitely using this method as marketing strategy to either attract investors or project developers to their platform or they are being paid to manipulate the figure, after all, the figures are generated by their software and it’s not like we have a central server where they can all gather these from.

For coinmarketcap, I have always know that something could be fishy about their figures and that is why we see some coins that was not popular before suddenly jump from lowest to top position, probably they are also using the platform for advertisement.

Pretty sure if we started digging, close to 87% (and I'm probabaly being generous) of the research methodology used in these kind of base level study, would be highly suspect.

Apart from academic work, hard to even believe without many grains of salt what we're reading from all these analysts.

That aside and back to topic at hand, even a normal, sincere exchange without agendas would find it really difficult to prevent manipulation of trading metrics. It happens at some level even on Dexs. Point I guess is never take numbers for more than face value.

Fake trading volumes are an old problem.The only solution is decentralized crypto exchanges and peer-to-peer crypto trading.87% is not a real number to me.It's quite exaggerated.Probably a big part of those 87% are bots.Anyway,bitcoin reached 4K USD and there's another portion of FUD "news" published at the right time. ;D

Since we're herd animals it would be interesting to see the effect on the 'real' people if all the fake trading was turned off. I suspect they'd run away in a panic when they realised how truly empty these markets are much of the time.

We actually caused this ourselves, when one of the criteria we normally advise people to use in selecting an exchange is the volume and I really don’t blame them for using that, it doesn’t make them fake, it happens too in normal online business, whereby an ecommerce business on instagram or Facebook buys lots of followers to make them look big already because people don’t want to really associate with the ones with low followers. That is why we have lots of qualified exchanges out there that are not practicing this but not so popular, I don’t have problem with the manipulating the volume provided they are carrying out their legal assignments.

This is a very long problem in this world and in cryptocurrency and in other fields there are fewer games that look cool and can improve their own quality, all with money will be easy to cause noise and spread Fud everywhere, actually it all happened because our response to something is excessive, so they read the conditions to take advantage of such a situation, don't let you belong to such a group, don't respond too much to anything because their goal is to create a noise, so that they can easily manipulate the market .

It's not really something that has only emerged in recent days.

If you are following bitcoin trading for any period of time during the bull market you would have seen very similar allegations being laid out. Whilst difficult to prove, it is very likely that at least some of these accusations are somewhat based and true.

This is a reason why I personally don't feel like TA with volume analysis always makes sense, because of the ease of which wash trading can happen with the help of exchanges internally without the outside noticing. It's also a reason why I do think that judging an exchange solely based on their trading volume is clearly not smart either.

I suspect you are right.

There's a reason that real scientific studies and papers have to go through months of peer reviews, analyses, editing, corrections, etc, before even coming close to being published, and even then, some fairly dubious stuff can slip through and retractions have to be issued at a later date. In an unregulated space such as this one, anyone can perform any "study" with any methodology they like, and they'll find some news source to publish their findings, or even just via some social media such as medium, twitter or reddit.

There are a number of studies (ironic?) which show that around 60-70% of people only read the news headline, and don't even read the article they are sharing or discussing. It must be a tiny number, then, who click through to the original study the article is discussing, and a vanishingly small number who read the study in enough depth to try to ascertain its validity.

In short, you can publish just about anything and people will believe it.

So was this a different report than the one I see now saying 95% of volume is fake? Did two reports come out within a few days of each other?

For the report that said 95% of volume is fake:
I read an article that described a few bits of how they decided what was real volume and what was fake volume. And let's just say it was ridiculous. First off it is a company that is trying to get an ETF approved and so their goal was to show that a lot more of the bitcoin market is regulated that commonly believed, and oh boy what do you know their results bear out exactly that by saying the 5% regulated volume is the only real volume  :P

It seemed from the report that certainly some exchanges fake a lot of their volume (which we already knew), but when you look at the methods used to find "fake" volume it's also clear the researchers were just looking for what would fit with their desired goal, which was telling the SEC that most of the market is actually under regulated exchanges and unregulated exchange volumes are faked, so that their ETF would be more likely to be approved. For instance they decided that humans usually only trade small amounts of bitcoin so large amounts of bitcoin being traded were probably fake. Also they said humans tend to trade in even number like 1.9 or 2.0 and not numbers with decimal places so those are probably fake. Which means they removed lots of real volume being done manually by humans as well as probably all bot/algorithmic trading. Basically just coming up with arbitrary ways of removing most of the volume so as to meet their goal of only regulated exchanges having any real volume.

I put these "all bitcoin volume is fake" repots in the same bucket as the report that came out in 2017 that said the bitcoin boom in 2013 was the result of one person or a handful of people, and the report that came out in 2018 that said the 2017 boom was again the result of only a few people.
Basically its utter bullshit.

Believe they are different reports. The article you are talking about is done by Bitwise:
https://www.cnbc.com/2019/03/22/majority-of-bitcoin-trading-is-a-hoax-new-study-finds.html

The one mentioned by OP is done by The Tie.

Seems like reporting the same thing over and over is in vouge.

I believe no one will ever  get the right result regarding the true volume of exchange unless these exchanges submit a report.  All in all, it is a waste of time reading this kind of article since this is just mere speculation of someone who thought they are bright enough to calculate the volume by simply doing the formula stated at the OP. 

This.

If you take CMC as your source, you'll have bogus numbers. I posted some stuff about this issue before.

https://bitcointalk.org/index.php?topic=5121557.msg50231076#msg50231076
https://bitcointalk.org/index.php?topic=5121557.msg50222937#msg50222937
https://bitcointalk.org/index.php?topic=178336.msg49998213#msg49998213

The most important Pic you should see:

https://i.ibb.co/DWFxhWN/ccddd.png

There isn't a single legit exchange in the first 25 they listed.

CMC is outright SCAM now.

I found and read the study by Bitwise. You can see it here: https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5164833-183434.pdf

It's very well done and much more impressive than the study linked to in OP. As you say, they come up with a number of metrics to "measure" which exchanges are largely made up of fake volume, and present those data in a very visually appealing and convincing way. The issue again, however, is with their methodology. There is an obvious conflict of interest with why they have written the study - they want to prove regulation is good so they can get more involved in regulations for their own profit. It would be the same as if a drug company was to fund a study in to how good their new drug is.

The metrics that they have chosen suffer from the flaws as you point out above - they arbitrarily write off a lot of volume because it doesn't follow their predetermined decision of what the volume "should" look like. They don't reveal at all how they reached those predetermined conclusions. They also don't reveal how many different metrics they investigated or looked at before settling on the two or three that perfectly fit the message they are trying to get across.

Their final conclusions do seem fairly accurate, however, and tie in exactly with what mindrust has said in the previous comment. CMC is nonsense, and the top 20-25ish exchanges they list are equally nonsense.

What's even "scarier" now is that even some of the reputable peer-reviewed journals have come under fire recently for corrupt practices (accepting some kind of kickback to publish poorly-grounded research). MY own country was involved in an embarrassing misconduct scandal recently when they were found out, the journal in question had to retract the study.

I can't remember who suggested it, but putting your research out here on this forum is probably going to get peer reviewed to a higher quality than you could ever pay for externally. Call me naive but the forum admins should look into it;)

At one point or the other, all exchanges must have all done this to gain popularity and probably stop along the line after gaining recognition.

Most of the exchanges you see today didn’t just get there because of the awareness they created or the number of users that believes in them from the beginning, a lot of them usually find it hard to get real attention when they start due to the low market volume they start with, so they will honestly have no choice to fake the volume to attract users, though the action is bad but I don’t think it is for fraudulent purpose, just that it could cause people that judge by volume to invest in bad project.

Exchanges that make up fake volumes are also higher chances they will scam you. Or that their security is so poor that they will get scammed and then run out of coins for your withdrawals. Anyway. Look at this report.
https://threadreaderapp.com/thread/1109114656944209921.html

And look at this reports trusted exchanges:

https://i.gyazo.com/43b137ad2938bc6e9620c9b11da039db.png

All of them makes huge sense to me. All are old beside Binance. Binance was just super lucky with its timing and also works good. So is not just luck, but still a lot of luck. You cant fail with any of these exchanges.

Many of the exchanges are reporting fake volumes exactly because they are actively trying to scam you. Exchanges that no one has heard of with ludicrous volume, like CoinBene, Coineal, EXX, OEX, and all the others listed in the report - I wouldn't be in the least bit surprised if they all turned out to be exit scams.

Stick with the well known exchanges, and only expose your coins or fiat to the exchange for the minimum amount of time needed to do the trade(s) you want to do.

One of the interesting factoids from this is that while futures volume was sneered at, when you cut out the twats faking away it suddenly becomes a lot more muscular and influential over the spot price. I'm sure more than a few moves were purely created to cash in through them.

And I find it weird they've made no mention of alts. There will be plenty of top 10-20 alts that'll have well over 95% fake volume, let alone the shit below.

the main reasons for the huge fall in volume on Chinese exchanges has been two things based on my observation. first was the fact that Chinese government started adding restrictions to exchanges which drove a lot of traders away from these exchanges to elsewhere. then it was addition of fees which were zero before and these two combined reduced the volume drastically which then was interpreted as "it was fake which is why it dropped!!!" which was not entirely true.

Even if they submit any form of report to the public or anybody that wishes to verify it, that doesn’t also guarantee that the volume quoted in the report will also be genuine and not manipulated like it’s done in the system, so like you said, all these is just a waste of time and it is not exchanges that people should be focused on fighting now, rather all their fight strength and tools should be focused on fellows scamming investors through some of these projects.

If true, exchanges might just be using this as a strategy to boost their existence in the market by hyping their reputation.

It wasn't like that as far as I know. There were suspicions of fake volume on big Chinese exchanges in 2014 since their volume spiked to crazy high amounts when you compared them to Western exchanges. This is from December 2013, published on Coindesk.

In an online audio interview, Shi said that he would not call OKCoin out and accuse it of manipulating the exchange rate, but he cautioned traders against the exchange, claiming that it “plays both the player as well as the referee”.

In response, Star Xu (Xu Mingxing), CEO of OKCoin who is also believed to be one of the largest bitcoin holders in China, issued a very brief explanation, in which he attributed the discrepancy to the company allowing large traders to trade through its API rather than the webpage interface – an explanation, if true, that may be somewhat hypocritical given that only a couple days ago Xu wrote a statement criticizing the use of “high-frequency trading software”.

Many perceive Xu’s explanation as a cover-up, among them, some Chinese bitcoin celebrities such as Li Xiaolai and Zhao Letian who posted on Sina Weibo agreeing that OKCoin’s data was problematic.

Later, the Chinese government begun to force audits on exchanges and I remember reading about them being told that they will not be allowed to continue operation if their volume was fake. As a result, the volume dropped almost instantly. So, unless people thought the exchanges were faking volume and took the government warning for a cease and desist letter, they were really doing it. The drop in numbers was just too big and too fast and they were being accused of manipulation for more than 6 months before the actual event.

Binance had some luck with the momentum they had going for themselves, but the most important aspect is that where their brave compliant competitors did everything to not break any laws where they offer their services, Binance just didn't give a shit and entered as if it was their right to settle there.

IIRC, Japan has been the only country actively trying to make Binance comply, but for whatever reason, Binance chose to halt their services in Japan and exit entirely. Such a large and successful exchange has no problems financially covering all the costs, so there must be other (potentially shady) reasons they didn't want to register and get themselves audited.

On the other hand, they are very important for Bitcoin because all the altcoin and ICO shit there increases the demand for Bitcoin because that's what most people use to trade.

Not just important but very important. As it looks almost 1/4 of all bitcoin trades goes on binance.  I doubt is much different with alts.

While we know that exchanges do in fact exaggerate the level of trading taking place in their platforms this study and its methodology leaves a lot to be desired, but when it comes to fake news that doesn't matter what matters is that they can write that there is something wrong about the market of cryptocurrencies and scare people away from the market, this is a study that already had the conclusion before they made any kind of calculation or investigation about the subject