Forbes’s new analysis of 157 crypto exchanges reveals that 51% of the daily Bitcoin trading volume is likely fake. “Wash trading” also benefits exchanges, allowing them to appear to have more volume than they actually do and encouraging more legitimate trading.
The widespread practice of wash trading, which means phony or fake volume, and the lack of adequate oversight across crypto exchanges are two of the most prevalent criticisms against Bitcoin.
As Forbes reported in its analysis on August 26, an investigation of 157 cryptocurrency exchanges concluded that about half of the daily trade activity recorded for Bitcoin was most likely fake.
Per the report, 51% of all reported trade volume is probably fictitious or non-economic. 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.
The US 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.” The reason why some traders engage in wash trading is to inflate the trading volume of an asset to give the appearance of rising popularity. In some cases trading bots execute these wash trades in tokens, increasing volume, while at the same time insiders reinforce the activity with bullish remarks, driving up the price in what is effectively a pump and dump scheme.
Wash trading also benefits exchanges because it allows them to appear to have more volume than they actually do, potentially encouraging more legitimate trading. According to the analysis, crypto exchanges like Binance, MEXC Global, and Bybit are examples of some of the biggest issue areas concerning phony volume.
These firms 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, even though they claim to be responsible for $217 billion.
The report also said there is no genuine method of calculating Bitcoin daily volume “even among the industry’s most reputable research firms.”
“For example, CoinMarketCap puts the latest 24-hour trading of Bitcoin at $32 billion, CoinGecko at $27 billion, Nomics at $57 billion, and Messari at $5 billion,” the report revealed.In March 2019, Bitwise published its findings that projected that 95% of CoinMarketCap’s Bitcoin trading volume was either false or non-economic.