As we are entering the last quarter of an eventful crypto year, exchanges are gearing up for a long-awaited bull market. With a sharp increase in new users, as well as daily trading volumes, platforms are doing everything possible to get in front of their audience.
And it’s not the first time this happens. Back in 2017, exchanges utilized all kinds of ways to grab the top ranks of price-tracking websites like CoinMarketCap. One rather “unethical” way of doing this was through the manipulation of reported trading volumes.
This article will discuss fake trading volumes, the progress that has been made, how CoinMarketCap evolved over the past two years, and what you need to know in order to buy bitcoin safely. Let’s start by taking a look at the past events that led to the issue at hand.
A quick look back
Two years ago, Bitwise released a report, outlining all the “shady” practices that exchanges were using to climb in the top ranks of CoinMarketCap (CMC). Approximately 95% of the exchanges they looked into reported fake trading volumes to portray their platforms as very popular and highly liquid.
After the report was made public, Chief Strategy Officer and interim CEO of CoinMarketCap Carylyne Chan mentioned that Bitwise’s findings were correct. The company vouched to look into the issue and rearrange the ranking of exchanges.
A few months after the release of Bitwise’s report, CMC introduced the “liquidity” filter. The new metric proved helpful for investors, making it more difficult for exchanges to take advantage of the loopholes.
About a year after Bitwise’s findings, research firm Chainalysis discovered that exchanges decreased the apparent inflation of their reported trading volumes. According to their report, the crypto ecosystem seems to be clearing up, but there is more work to be done.
Some large exchanges, including Bitforex, still follow unethical methods when it comes to the reporting of trading volumes. This is done to improve their rankings and increasing the liquidity of their platform. The study points the finger at a total of 12 cryptocurrency exchanges that still report over-inflated trading volumes in order to get higher spots in the exchange list of CoinMarketCap.
For reference, the Chainalysis report was published in November 2019, just a few months before CoinMarketCap was acquired by Binance. The latest has since changed a large number of ranking metrics, making the reported trading volume a less important factor.
How Binance improved CoinMarketCap
Earlier this year, Binance acquired CoinMarketCap for an undisclosed amount. The popular exchange vowed to help the platform reach its full potential while remaining completely objective to the presentation of data.
Naturally, many users felt hesitant about this transition. According to them, Binance could easily manipulate the data or emphasize the importance of Binance and BNB. However, half a year after the acquisition took place, we can see that this is not the case.
Currently, the exchange list is conveniently split in Spot and Derivatives. This makes it easier for traders of all experience levels to find exactly what they are looking for.
The inflated trading volumes posed a great problem for the exchange list related to “Spot” trading. Since April, however, the ranking methods have changed completely.
While liquidity and the 24-hr trading volume are still relevant when it comes to rankings, CMC now determines the final placement based on the Web Traffic Factor – a collection of data from multiple web traffic sources, cross-checked with the reported volumes. Naturally, this leads to more honest rankings and fewer attempts to “cheat” the system.
Is the problem solved?
When looking at the past 6 months, we can confidently say that we are headed towards a good direction. However, it may still take some time until the problem is eliminated. As long as there are platforms reporting fake volumes, CoinMarketCap may experience ranking issues.
For many, the challenge seems easy to solve – simply remove all platforms that report fake volumes from the exchange list. While this would solve the problem, it would take away the democratic approach that Binance has maintained all along. Many users would be upset since the platform would no longer present data in an objective manner.
Looking at the past few months, we can see that the platform is working very hard to improve the space and motivate others to do the same. This is all done in an unbiased manner, with the user in mind. If this trend continues to unfold, the future of cryptocurrency seems bright.
What to expect in the future
If the market follows historical patterns, we would now be getting ready for a surge in demand – a new bull market. And this would be very interesting for cryptocurrency exchanges. With more new users, it would become imperative for CoinMarketCap to operate at the highest possible standards. This would lead to the elimination of fake volume reporting, with the most popular platforms taking the majority of market share purely through their reputation.
Aside from that, investors are no longer entering a fully unregulated “wild” market. Those that were around in the last bull market (2017) are well aware of these issues, and will likely educate new users to avoid the same mistakes they made. This also goes for new project listings, who will try to get listed on popular exchanges, even if this means paying a premium.
Overall, it is important to remember that crypto is still a small-sized market that is prone to manipulation. In the past 10 years, industry leaders have managed to improve the way data was presented, but there is still work that needs to be done. More specifically, users should be able to navigate through price-and-data tracking platforms easier, making educated decisions easier. We hope that the next few years will improve this issue, making cryptocurrency a mainstream name on a global scale.