Cryptocurrency exchanges around the world have been accused of having faked volumes in order to rank better in sites such as CoinMarketCap. In the same site, the “Reported” and “Adjusted” volumes also differ. This makes it difficult for analysts and blockchain researchers to have good information about the digital currency market.
The company Bitwise Asset Management released a report a few months ago in which they inform that 95% of the exchanges are reporting fake trading volumes. This has confirmed something that was discussed in the cryptocurrency industry for a long period of time.
This time, the crypto market platform ViewBase, released a report in which they provide details about how to properly rank crypto exchanges. For example, it is possible to think about exchanges according to the value of their tokens combined or how much virtual currencies they own.
The platform is also focused on stablecoins, trying to understand how they move and behave as well. At the moment, ranking exchanges just by the volume the handle could be something from the past and even a fallacy.
The first way to rank exchanges is to see the amount of Ether (ETH) that they hold on their wallets. Kraken, Binance, Bittrex, Bitfinex and Poloniex are the top 5 exchanges following this metric. They had 2,933,073 ETH, 2,539,664 ETH, 1,431,144 ETH, 1,391,490 ETH and 1,209,427 ETH respectively as of May 1, 2019.
Although Kraken has almost three million Ether it is currently ranked 98 in terms of ETH trading volume. That means that it moves less than 1% of the digital currency trading volume.
The second metric that ViewBase proposes is related to the ERC20 Token Holdings Valuation. As per the company, Binance, Huobi, Bittrex, FCoin and KuCoin are the top 5 exchanges. ViewBase says that Binance and Huobi Token have their own digital currencies, Binance Coin (BNB) and Huobi Token (HT) that are based on the ERC20 standard. It is worth mentioning that Binance Coin is going to be deployed on its own network in the near future and that this could have an effect on this metric.
ViewBase explains about this:
“A vast majority of Initial Coin Offering (ICO) tokens are issued on the Ethereum blockchain, ranging from established projects like Omisego to the latest IEO tokens like Fetch.AI and Celer. Hence it is reasonable to expect the valuation of ERC20 tokens deposited on an exchange to be reasonably proportional to its reported trading volumes.”
Finally, the company proposes a third way to understand trading volumes. This is taking into account Ether and ERC20 Token valuation combined. Binance, Huobi, Bittrex, Kraken and Bitfinex are the top 5 exchanges taking into account this last metric.
Thus, trading volume is not the best way to understand which are the most popular exchanges or the largest in the market. Bitcoin analysts and blockchain experts need to rely on information that is clearly being manipulated in order to drive conclusions that will clearly be far from reality. This is also vital to the whole ecosystem in determining the price of bitcoin and major cryptoassets.
CoinMarketCap, the largest site for aggregated data about virtual currencies and exchanges, explained that concerns of the community over inaccuracies are valid and they are trying to solve this issue. According to a report released by Bloomberg a few weeks ago, CoinMarketCap is going to be adding more information on its website to help users make better decisions.
About it, Carylyne Chan, global head of marketing at the site, mentioned:
“For instance, if an exchange with low traffic has $300M in volume and just 5 BTC in its wallet, users will be able to draw their own conclusions without the need for us to make arbitrary judgement calls on what is “good” or “bad.”
The market is trying to become more professional by providing better information. Exchanges will also have to provide information about their trading volumes and more data about them in order to create a clear ranking with improved trading volumes.