Bitcoin Trading Volume: “It’s a Trap!”
Bitwise, an asset management firm looking to legitimatize Bitcoin so it can create the first exchange-traded fund (ETF), determined that more than 95% of trading volume reported by the many exchanges who trade cryptocurrency is fake.
Their study was first reported by the Wall Street Journal this week and confirms what many traders in the space have already suspected – a lot of the non-regulated exchanges are using wash trading and other techniques to falsify their trading volume making it appear as there is significantly more volume than there actually is.
How bad IS it?
Bitwise determined that out of the $6 billion in trading volume reported by exchanges, only $273 million is actually legitimate. Bitcoin’s actual trading volume is only 4.55% of what the exchanges report.
Many traders speculated there was an issue with trading volume when Coinbase – a regulated exchange – consistently reports a much smaller amount of trading volume compared to its unregulated non-U.S. based competitors.
Why is fake trading volume a problem?
Incorrect trading volume creates a number of issues for those trading in the cryptocurrency space:
- Exchanges can use falsified trading volume to increase the spread between the bid and ask prices. Basically, this means the exchange can charge buyers a higher price than Bitcoin actually costs and pay sellers a lesser price than Bitcoin actually sells for. The exchanges then pocket the difference, effectively swindling both buyers and sellers.
- Fake volume destroys technical analysis. Trading volume plays a key part in most – if not all – technical analysis strategies and planning. Without accurate trading volume, the plans and strategies developed using technical analysis cannot be effective, resulting in losses to those using those strategies.
How can Bitcoin speculators protect themselves?
Only trade Bitcoin on exchanges that report accurate trading volume. Despite HODLers preferring cryptocurrency remain unregulated, regulated exchanges must comply with the rules and regulations of the countries in which they operate.
The most stringent regulations take place in the United States, so exchanges like Coinbase may provide better protection against manipulation as they must abide by the rules or else the Securities and Exchange Commission (SEC) will shut them down. Only trading on Coinbase and/or using Coinbase’s reported figures when performing technical analysis should result in more accurate strategies.
Source: CNBC: Majority of bitcoin trading is a hoax, new study finds
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