Bitcoin ETF research finds that 95% of Bitcoin volume is fake
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I literally never heard of this exchange before today. If some random exchange popped up and overtakes all of long time "legitimate" incumbents (eg. coinbase, bitstamp, kraken) combined, I'd be suspicious of that too. The same applies for most of the other exchanges near the top of the list on slide 22. In reality, I don't think seasoned traders are affected by this, only newcomers and the occasional journalist.
https://coinmarketcap.com/rankings/exchanges/
I think it's pretty well known within the crypto community that CoinMarketCap exchange volumes are bullshit - other than Binance, the top 45 basically consist of exchanges I've never heard of. They're bullshit because there is a ranking, one that many newbies would refer to, and it's trivially easy to fake volumes through wash trading or just lying if you own an exchange. It's been like that for at least a couple years too - when I first found CoinMarketCap, the top exchange was BitMEX by a large margin, which everybody said to stay away with and doesn't even appear today.
The elephant in the room is that the liquidity and trading on BitMEX is legit and many times higher than spot, yet BitMEX is unregulated. Big players can and has used BitMEX to manipulate spot prices (arbitrage/market maker bots will move the price on regulated spot exchanges accordingly). It used to be that most of the manipulation happens on Okcoin futures products. Since the China fiasco in 2016-2017 they lost almost of all of their traders to BitMEX.
Those exchanges that don't submit data are either doing shady stuff, or don't care to be listed (which is perfectly fine).
"5/ Only 10 exchanges have >$1M real daily bitcoin trade volume. @binance, @bitfinex, @krakenfx, @Bitstamp, @coinbase, @bitFlyerUSA, @Gemini, @itBit, @BittrexExchange, @Poloniex / @circlepay You can see the daily BTC trade volume on these exchanges at: http://www.bitcointradevolume.com "
Note: Not verified by me, just relevant to the source.
[Now I'm going to peek at the actual volume rankings. Hmm, not bad - Kraken is doing better than I thought, and I underweighted Bitfinex and Bitflyer per U.S. bias, but it's otherwise quite close.]
My gut reaction is "this should be illegal"
Direct link to ETF research PDF linked from the thread:
https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
Interesting things to see in the hundreds of pages:
page 24: What Do Real Exchanges Look Like?
page 43: Trade Size Histograms For Suspect Exchanges
page 57: Applying All Three Analyses: BitForex
page 111: We Have Reached The Point Of Diminishing Returns For Improvements In Efficiency
>Bitcoin ETF is “absolutely not” going to be approved by the SEC, says CSO of CoinShares
> The whole cryptocurrency market has been eagerly waiting for the approval of a Bitcoin ETF by the U.S. Securities and Exchanges Commission [SEC]. The reason the exchange-traded product is of much importance to the community is that it is considered as the gateway to drive the institutional investors into the space.
>So far, the commission has rejected all the proposed rule changes with the main reason stated as concerns over market manipulation... https://ambcrypto.com/bitcoin-etf-is-absolutely-not-going-to...
There have been a bunch of applications, all turned down so far.
UTXOs remain the best way to track overall market use and movement. Through this, you can plainly see that the last year of market activity has been thin, just traders competing with each other. With one notable exception in Nov/Dec of 2018 causing the big dump. This was one of the most singular events in Bitcoin history, with old coins fueling a major drop in price.
UTXOs remain the best way to track overall market use and movement.
Looking at the Winter 2017 UXTO transaction logs, it's pretty clear a single entity was (can/is) coordinating upwards of 10%-50% of the volume, the clearest examples of this are throughout December of 2017.
That being said, it looks like the whole 2018 had more utxo activity than 2017, and things seem to get even more intense lately: https://utxo-stats.com
But still, the study (at least the highlights given in the twitter thread) looks solid and well-presented.
Further, volume on unregulated exchanges does effect price on regulated ones ... so you don’t have to manipulate a regulated exchange to move price.
Really what crypto needs is a trustless blockchain based exchange. Something like an Ethereum based limit order book. Then no other exchange is relevant.
People use them - Idex is one of the most-used Ethereum dApps - but they suffer from ease-of-use problems. Either you go through a web interface (which defeats the purpose of them being decentralized, since you have to trust the website you're making the trades on) or you put up with the hassle of sending individual transactions to smart contracts with your Ethereum wallet, which is pretty error-prone for most ordinary users.
For the most part, this report basically ignores Asian exchange volume.
It would certainly be interesting to see an analysis of BitMEX.
You can't pass this drivel as research.
Re Huobi, there is strong evidence of material falsified
When 95% of volume was studied to be fake, even if they were 50% off in their estimate there is an absolute need for Coin Market Cap to be a gate keeper.
With this research, the Bitcoin ETF group is telling SEC: Our ETF will better than other exchanges. Please approve.
50% of phone calls made each day in the US are fake robocalls, that’s reflective of the phone system as a whole, wouldn’t you say?
The fake volume may be reflective of bitcoin price or the lack of regulation of bitcoin exchanges but I don’t think thenfake volume is reflective of bitcoin as a whole.
Yes, I would! I think that deregulation has enabled the phone system to become a terrible system. That's not a good analogy if you were trying to prove the opposite.
Yes, it is reflective of the phone system. If the phone system had appropriate safe guards to prevent faking of ANI data and other abuse prevention mechanisms, robocalling wouldn’t be an issue.
I’ll leave it to others to decide if you picked a bad analogy or if you just proved the point of GP, I’ve got no skin in that game and don’t care.
If the phone system keeps trending as it is, people will shut off service and it’ll eventually disappear.
To me it shows that: 1) Anyone can start an exchange (unregulated market) 2) Some exchanges are shady and untrustworthy
It's not that "most transactions are fake volume". Its that if you aggregate the data, you include a lot of bad data.
I think you misread/misquoted me. It's that 85% of the major exchanges are mostly fake volume, and that 95% of all transactions are fake volume. It's in the article.
So, it's not 85% of the major exchanges, it's 85% of the exchanges top ranked by CMC's volume as reported by the exchanges themselves. Anyone could create an illusion of an exchange and do a fake-generated behemoth of an exchange within a couple months.
The majority of the top-ranked CMC exchanges are just fake-volume generators making money from all those ICO tokens/altcoins that hope that getting listed will help their price, or most commonly just sell more of their tokens to more uninformed victims.
For most of those exchanges you can't even find a single human name throughout their site. There was a big rise of using white-label crypto-exchange products, so you don't need much to get one of those online, they even provide "liquidity" network.
It's a shitshow, but it's irrelevant or a useless detail to bitcoin's value and trading, most big firms like DRW/Cumberland etc. breath this things and I'm sure they have talked to their SEC buddies about it.
Was not able to see it here: https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2...
But also take a look at the most promising sharding project: https://github.com/nearprotocol/nearcore
Two complete different approaches.
So people are using it as a store of value, rather than a medium of exchange? This would count against it being used just to buy drugs etc wouldn't it?
So it's digital gold, and maybe being digital means it has long-term upside.
Best use cash and leave no trace.
I don't have any money to launder so I'm not an expert, but that's seems right?
I might be arguing semantics but if you put dirty money in to a box, and 5 years later it spits out clean money. That's different to a box where you put dirty money, it immediately spits out clean money, but you leave it there for safe keeping.
On the other hand, if you have regular movement of money through a system, it becomes easier to trace the start and end points. If moneys just sitting there, you cant follow it.
It's just solving both the fundamental problems of handling blood money at the same time, ergo Lambos and HODL genius.
For example, when looked at as a currency it acts similarly. Where the small tiny faction of the asset (M0) is used as a medium of exchange where people buy consumer goods and services. With M1 M2 M3 and MB being illiquid parts of the supply used for investment into other assets or for stores of value.
> So people are using it as a store of value, rather than a medium of exchange?
Just like currencies and metal commodities, both, and in similar proportions.
I wasn't making any judgement on what Bitcoin is good or bad for. I'm just inferring from the data how it is actually being used.
Bitcoin is held to a higher standard than actual currencies with regard to how much or little of it is used for purchases, and it is held to a higher standard than precious metals like gold with regard to how much or little of it is not moved at all.
The people educated in those asset classes commenting on bitcoin don't seem to notice, the people not-educated in those asset classes commenting on bitcoin aren't familiar with the economics and velocity of any asset class. That contributes to the state of the conversation today.
To move this discussion a little further, M0 of any currency would be a similar fraction of a percent as the trading portions of any commodity like gold.
With bitcoin, we also have to understand that trading volume on exchanges won't illuminate whether bitcoin is used for buying anything, as that likely would not be a transaction volume reported on exchange, but directly on chain itself and on secondary routing networks like Lightning.
One difference is that the obvious remedy that was applied to bucket shops at the time (regulation) doesn't seem to be as effective this time around due to the international nature of Bitcoin markets.
Check out some 15/30 min or 1h BTC charts, look for 'bart' patterns. Pumping and dumping to wipe out shorts/longs, it's blatant and obvious.
Please correct me if I’m wrong, but it appears 9 of the largest exchanges are regulated under New York laws.
1. Is there a scenario where to US could now immediately stop almost the entire bitcoin exchange process?
2. If that’s the case, isn’t that entirely against the point of a “decentralized” currency - in that it’s not worth much if you can’t effectively trade it.
3. If 95% of volume is being faked, which according to the histograms is likely, what other discoveries about Bitcoin could be waiting to be revealed?
I'd be far more concerned with the majority of the mining power being centralized in China if I was invested in bitcoin... that's what can actually shut it down.
Further, any with a substantial amount of bitcoin, e.g. $1m, who might gain from their assets having a reputation as a means to transfer money, can create $1b in daily volume at the cost of $1 per year on the blockchain, fully automated.
The expectation that nobody on the planet will do this is obviously zero. So you naturally get fake volume. I'd be surprised if it wasn't >90%.
CZ, keep up the great work!
The problem is correcting for bad volumes.
It also doesn't even mean the exchange is malicious. Some exchanges have 0 fees. So if someone using the exchange trades with themselves, it's 0 cost.
This has nothing to do with Bitcoin blockchain or Bitcoin itself. It's all about the speculation markets.
What kind of trading would you say is on-chain?
Really? Nothing to do with Bitcoin? Really?
But if those exchanges don't even bother to execute trades on the real blockchain, if the involved steps are just too much of a hassle, if they are content with storing and processing those "transactions" in their SQL Database, then...what is left of that old White Paper, is it anything else than a sacred book of a religion no one believes in anymore?
One of these is called Lightning Network for bitcoin, where (in VERY oversimplified terms) the blockchain becomes an arbiter of sorts, and is only used when there is a disagreement or someone tries to cheat someone else out of money, or for very large transactions (large in terms of value, not transaction size).
Saying "If the blockchain works, if it's good for anything, then ... use it!" is like telling someone who wants to fly across the country to just drive it since you were told that cars can drive anywhere in the country...
You could technically use the blockchain for all transactions, but it has a number of tradeoffs that most don't want to use for every single transaction. And that's okay! Having the ability to make a choice between the "zero trust" nature of the blockchain and trusting an exchange for faster/cheaper transactions is awesome!
Hopefully things like Lightning Network will keep continuing and can add an additional choice which combines just about all of the "zero trust" benefits of a blockchain with the speed and cost of off-chain transactions.
I think crypto proponents very much said otherwise. The blockchain was of course hyped as a practical, usable thing. Zero trust transactions, an alternative to "fiat" currency, smart contracts, Venezuela, privacy and all that. Those were real promises and arguments by the crypto community. What's up with all that?
It seems the Blockchain is unusable, exchanges are just centralized places who apparently don't even put your money on the real blockchain and possible solutions are 'hopefully' in the future.
But like I said above, a car taking magnitudes longer to cross the country compared to a plane doesn't make the car useless for all purposes. Having the option of being able to use a blockchain to transact without trust is a huge benefit to many. It might not be what everyone wants for all transactions, and it having downsides doesn't mean it's useless, but it still has immense value to some, for some of their transactions. Bitcoin was not designed to be faster than Visa, so saying it's useless because it can't keep up is kind of silly.
Blockchains and Bitcoin might be useless for you in their current forms, and that's more than fine! But they are still improving and changing, and they will almost definitely never truly be "finished". It's all about fixing the problems that people have.
When Bitcoin was first introduced, it was one of the first to allow trust less transactions without a central authority (again, a gross oversimplification). People found value in it, and as it gained some popularity problems were found, and people began working on solving them.
Those solutions are now beginning to have more widespread usage. Things like Lightning Network aren't "hopefully" in the future, they are now. The usage is still small, partly because the developers are intentionally taking things slow (becaus bugs can be very expensive here!), but the theory seems pretty sound. And many exchanges are already part of it and are planning to move to using it for everything (and IMO any good exchange should love the idea of LN! It takes all the risk out of holding people's money, it allows you to prove your trading volume is real, and it is as fast as you can move the bytes).
I have no doubts that more limitations will be found, and LN itself already makes some tradeoffs, so there will be more work after it's "done". And you can continue to not use it, and you can continue to criticize the ecosystem based on what charlatans and assholes said, but I believe in this tech and there are many people who will continue working on it and improving it for those who want it, for the use cases they want it for.
I would expect that to be the ONLY kind of trading, with the single exception being decentralized exchanges that need to use the network to facilitate trades.