CoinMarketCap to Update Exchange Data

CoinMarketCap (CMP) is adding data tools to reflect the report by Bitwise Asset Management of fake bitcoin transactions on crypto exchanges. This article will cover what CMP has done so far and what’s in the works. You’ll also learn ways to effectively research exchange trade data to make your own determinations.

What happened with Bitwise?

Let’s quickly recap how Bitwise data pointed to massive fake bitcoin transactions on a number of exchanges. Bitwise Asset Management is in the process of applying to the SEC for an Exchange Traded Fund (ETF). With their application, they sent in a report which showed that non-economic trades were rampant on some exchanges.

All in all, the report concluded, about 95% of bitcoin transactions across the board were fake. These non-economic trades were purportedly in-house transactions via wash trading. These types of wash trades are a manipulation to try and pump up traffic, transaction fees and exchange volume on certain exchanges. The exchanges that boasted high volume conceivably could charge big listing fees from new cryptocurrencies. Interestingly, this is not a new concept in the world of trading. Exchanges like Nasdaq and NYSE continue to compete to list new assets.

While it was hardly news that unregulated exchange data was far from cut and dry, this revelation to the SEC had a specific purpose. Bitwise differentiated in its report which crypto exchanges were ‘real’ and which were ‘suspicious’. The ten ‘real’ exchanges were all regulated and were also the same exchanges that Bitwise included in its proposed ETF. Several possible conflicts of interest surround the legitimacy of the report. But people can clearly see that much of their information about excessive wash trades looks to be about right.

The application process and data report was Bitwise’s way of gaining approval for their ETF. By offering this information, they were trying to mitigate the SEC’s concerns regarding the current crypto market:

  • Market manipulation
  • Custody
  • Liquidity
  • Pricing

What is CoinMarketCap and where does it come in?

Bitwise pointed to exchange data showing up on CoinMarketCap, the top website for cryptocurrency trade information. Authoritative sources from across the globe cite CMP data in their own reports and articles. Additionally, hundreds of crypto sites plug into the CoinMarketCap API to access CMP data and provide it to their own users as well.

It was here at CMP that Bitwise detected the fake transactions. In response to the report, CMP admitted problems with the current data. As Global Head of Marketing, CMP’s Carylyne Chan sent an email to Bloomberg News committing to improving the transparency of exchange data by creating new data points, including:

  • liquidity measures
  • hot and cold wallet balances
  • traffic data on exchange sites

As an example, Chan pointed out that if an investor sees an exchange reporting hundreds of millions in volume, they can now also look to that site’s traffic numbers and wallet balances. If the wallet is showing a low number of BTC in contrast to the exchange’s volume numbers, then investors will have this information. They can draw their own conclusions when looking at bitcoin’s (or any other coin’s) market cap and trade data.

Up until the Bitwise report, CMP has based exchange volume on what each exchange is reporting. So naturally, the exchanges involved with heavy trade manipulation were showing up with bigger numbers.

What is CMP doing about it?

CoinMarketCap has actually been accused of reporting incorrect data before. In August 2018, the Bitcoinist wrote about a similar story to the Bitwise revelation. In the article, they focused on the Blockchain Transparency Institute’s report on fake trades. So that the Institute could find more accurate volume data, “a new system was compiled using available order book liquidity and unique daily visitor counts for the various exchanges.” Since then, CoinMarketCap’s has added an option to their “Exchange” page. When clicking a particular Exchange, you now have two options:

  • View the Top 100 by Adjusted Volume, or;
  • View the Top 100 by Reported Volume

By selecting “Reported Volume” you’ll find the BitMax exchange at the top of the list of crypto exchanges, with over $4 billion reported in 24-hour volume:

Reported Volume – https://coinmarketcap.com/

But if you select “Adjusted Volume” you see a completely different picture. BitMax is in now 40th place with $130 million in adjusted 24-hour volume:

Adjusted Volume – https://coinmarketcap.com/

Bitwise’s data also called into question Coinbene’s reported volume. That’s because it was much higher than Coinbase, an exchange with millions of more users and exceedingly higher site traffic. Only two weeks after the report, Coinbene is now showing Reported Volume and Adjusted Volume numbers that are the same.

Adjusted Volume vs Reported Volume
https://coinmarketcap.com/

How does CMP calculate exchange volume?

According to the methodology as posted on their website, CoinMarketCap retrieves market pair volume (i.e. BTC/UDS) as reported by the exchange. Currently, CMP does not include exchanges that require zero fees for transactions in their crypto volume data.

coinmarketcap
https://coinmarketcap.com/methodology/#market-data

This is because without fees, there are significant incentives for trading a particular trade pair. Also, this type of trading is often where you’ll see wash trades. How CMP is coming up with the adjusted volume is not yet clear. But it may be similar to what the Blockchain Transparency Institute used to determine adjusted volume:

Suspect exchanges with extremely high volume/visitor numbers were re-calculated based on the average vol/visitor ratio of known accurate reporting exchanges which averaged out to around 3.5%. This number could then be multiplied by the total unique visitor figure to determine a new estimated volume per day number. It was also noted that the suspect exchanges with a new volume number much lower than their reported figures all have very low social media activity as well as multiple reports of wash trading posted online by community traders.” https://www.blockchaintransparency.org/reports

Moral of the story…

Moral of the story is and has always been in crypto: Never take anything for granted and do your own research. Cryptocurrencies are different from fiat in so many ways. But maybe one of the most important ways is that they enable anyone, anywhere, any time, to participate in trading. The more tools and information available to investors of all walks of life, the better. So thanks to CoinMarketCap for quicly making these adjustments and committing to making more to give us better information.

“We provide the best tools for you to make your own conclusions”

– CoinMarketCap FAQ

At HedgeTrade, we’re also committed to giving you the information and tools necessary to trade successfully. One of those tools is our tokenized application that we will soon be testing out. The app will enable newbie traders to trade alongside the pros in a mutually beneficial environment that incentivizes expert traders to share their trading predictions. Join us today!

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