UPDATED | March 26, 2019
According to a March 25 article in Bloomberg, CoinMarketCap.com quickly responded to the concerns outlined in Bitwise Asset Management's presentation to the SEC.
Per Bloomberg, CoinMarketCap.com agreed that the concerns over fabricated trading volumes "are valid." The site plans to implement tools to help site users make decisions for themselves, such as "liquidity measures," the balances of both hot and cold wallets, and the amount of online traffic each listed exchange receives.
Speaking to Bloomberg, Carylyne Chan, global head of marketing at CoinMarketCap.com said:
"For instance, if an exchange with low traffic has $300M volume and just 5 BTC in its wallet, users will be able to draw their own conclusions without the need for us to make arbitrary judgment calls on what is 'good' or 'bad.' We want to state that our philosophy is to provide as much information as possible to our users, so that they can form their own conclusions and interpretations – and not introduce our own bias into that mix."
ORIGINAL | March 22, 2019
On March 19, two representatives from digital currency index fund provider Bitwise Asset Management went before the US Securities and Exchange Commission (SEC) and outlined some of the most significant problems and misconceptions of the cryptocurrency industry.
In January, Bitwise submitted an application to the SEC proposing a "physically held" bitcoin exchange-traded fund (ETF). The company believes that its proposal stands a decent chance of getting approved because the fund's value will be based on spot prices provided by various digital currency exchanges, instead of contracts settled in cash like previously proposed bitcoin ETFs.
In what seems to be a bid to convince the SEC that a bitcoin ETF is a good idea, the presentation given by Bitwise expressed the notion that the vast majority of trading volume reported by unregulated exchanges is fake. For this reason, Bitwise claims, "The real market for bitcoin is significantly smaller, more orderly, and more regulated than is commonly understood."
According to the report, all the false data reported on sites such as CoinMarketCap cause individuals, companies, and regulators to view the crypto market as a $6 billion behemoth that is unpredictable, uncontrollable, and unable to be regulated. Bitwise claims that, after accounting for fake volume and wash trading, the crypto industry is relatively small and only completes about $273 million in daily trades.
To prove its point, Bitwise compares data between crypto exchanges Coinbase Pro, which it views as reliable, and CoinBene, which it deems suspicious.
Looking at screenshots taken from CoinMarketCap, the report suggests that one reason Coinbase Pro can be relied upon is the "unequal and streaky" mix of red trades, which signify the selling of cryptocurrency, and green trades, which represent the purchase of cryptocurrency. This is very different from the data taken from CoinBene which show a "perfectly alternating pattern of green and red trades." Most would agree that such an even number of buy and sell orders on any virtual currency exchange is improbable.
The report also shows the difference between the number of trades at certain times of the day on the Coinbase Pro exchange and the RightBTC platform. Unlike the data from Coinbase Pro that shows how the number of trades fluctuates depending on the time of day, the data taken from RightBTC shows many hours and even days of zero trading volume. According to Bitwise, "These gaps are not correlated with business hours, volatility, up time or other factors. The two likely explanations are fake volume and/or trade mining."