Many crypto asset exchanges have been “wash trading” and using incentivised trading schemes to inflate volumes over the last year – and it is claimed the situation is getting worse.
Lower quality exchanges have increased market share by 30% over the last 12 months, as most trusted international crypto exchanges are based on aggregate volumes rather than granular trade and order book data, a study has found.
The claim comes from cryptocurrency market data provider CryptoCompare, which has launched an exchange benchmark using both a qualitative and quantitative order book and trade data approach.
The CryptoCompare Exchange Benchmark was set up to address “industry concerns over inflated volumes and the lack of reliable metrics for assessing cryptocurrency exchanges”, said CryptoCompare’s chief executive and co-founder Charles Hayter.
Instead of aggregate volume, the benchmark uses correlations between volume and volatility and standard deviation of volume as inputs, according to the firm.
“This is due to existing issues with volume manipulation, wash trading and trading incentives.”
Wash trading is where a trader will simultaneously buy and sell market instruments to give the appearance of more activity in the market.
Based on exchange data for the month of May this year, the analysis found the most trusted exchanges to be: (1) Coinbase; (2) Poloniex; (3) Bitstamp; (4) bitFlyer; (5) Liquid; (6) itBit; (7) Kraken; (8) Binance; (9) Gemini; (10) Bithumb.
The benchmark’s ranking components include geography, legal/regulatory, investment, team/company, data provision, trade surveillance and market quality.
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