Over 50% of all Bitcoin trades on exchanges are fake, new analysis reveals

The cryptocurrency space is still relatively young and volatile, with over 20,000 individual tokens in circulation, but Bitcoin (BTC) remains the flagship digital asset, accounting for 40% of the $1 trillion global market capitalization of all digital assets.

However, the widespread practice of wash trading, which is a kind of phony or fake volume, and the lack of adequate oversight across crypto exchanges are two of the most prevalent criticisms leveled against Bitcoin.

An investigation on 157 cryptocurrency exchanges came to the conclusion that around 51% of the daily trade activity recorded for Bitcoin was most likely fake, Forbes reported in its analysis on August 26.

Indeed, 51% of all reported trade volume is probably fictitious or non-economic. As per Forbes estimates that the industry’s daily Bitcoin volume reached $128 billion in June 2022, which is 51% less than the total self-reported volume from numerous sources, which they believe would be around $262 billion.

Wash trading

The U.S. Commodity Futures Trading Commission (CFTC) defines wash trading as:

“Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position.” 

Companies like Binance, MEXC Global, and Bybit are examples of some of the largest issue areas when it comes to phony volume according to the analysis. 

These companies boast a large volume of trades yet operate with little to no regulatory monitoring, which would strengthen the credibility of their numbers. The less-regulated exchanges in the research are responsible for around $89 billion of the real volume, despite the fact that they claim to be responsible for $217 billion.

In the Western world, and especially in the United States, it is common to conceive of Bitcoin trading just against the United States dollar, the euro, or even the British pound. However, this is not the case, some of the most significant trading pair activity takes place against fiat currencies such as the Japanese yen and the Korean won, as well as against major stablecoins such as the Binance dollar and the USD stablecoin.

According to the findings of a white paper published by Bitwise in March 2019, it was projected that 95% of CoinMarketCap’s Bitcoin trading volume was either false and/or non-economic.

Quantitative and qualitative assessments

Forbes used both quantitative and qualitative assessments in order to alter the trade volume that was provided by the exchanges so that they could carry out their study.

In contrast to other approaches, which conduct tests on transactional data (and may potentially be duped), it assigned a credibility grade to a company by analyzing no less than five datasets that, when taken together, either inspire or erode trust in a company’s self-reported statistics.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.