CryptoCompare report: Trade patterns alone are insufficient evidence of exchanges fudging trading volume
Of the many pertinent stakeholders in the cryptocurrency space, exchanges have been the well and true focus of 2019. With the absence of prominent ICOs, the rise of IEOs, and the surging price of Bitcoin [BTC] as well as the collective market, the central bodies that govern value transfer are key to the collective industry, and their integrity is paramount.
However, several reports have emerged this year detailing the gulf of difference between an exchange’s actual volume and their reported volume. To evidence these incredibly flawed volume submissions, many reports adjudged the trading patterns, as depicted via histograms to be a key sign for a larger fudge-up. However, a recent report by the cryptocurrency market aggregators, CryptoCompare, chided this claim and stated that trade patterns might not be a tell-all.
The report titled “Exchange Benchmarking,” had a section spelling out the same called, “A Note on Fake Trading Reports.”
It should be noted that when the exchange is talking about an exchange’s “quality,” it is basing this on a custom analysis and grading scale where several factors including geography of the exchange, legal assessment, investment, trade surveillance, and quality of the legal assessment, team, data provision, and market are collectively analyzed.
Based on the above, CryptoCompare imparted a grade to exchanges ranging from AA to F. Only six exchanges received an “AA” rating, with Coinbase taking the top spot and Binance only good enough for 8th, with an “A” rating.
Coming back to the question of trading patterns, the report suggested that a correlation between “quality,” based on the above metrics, and trading patterns was a “challenging” ordeal. The concerns with respect to the same ranged from manipulation of trading patterns, lack of linkage between the two and the case of truncated histograms.
CryptoCompare, citing the case of Huobi Pro, EXX and Exrates’ BTC/USDT market with their corresponding trading patterns, detailed how the same can be manipulated for a cause. On the topic of Huobi Pro, the report read,
“This has raised concerns that market makers are trading with different patterns to avoid detection instead of ceasing their wash trading activities. We believe that due to the ease at which trade distribution patterns can be altered they do not represent a sufficiently robust indicator of market quality.”
The report further attested that trade pattern judgement can result in”false positives and false negatives,” citing the case of Gemini and the Chinese exchange, ZB. Gemini, run by the regulatory-reliant Winklevoss twins, has often been hailed as a “real” exchange, with this report giving it an “A” rating. However, its ETH-BTC market “clearly does not match the expected distribution.”
On the flipside, ZB.com, well out of the “real” volume category, shows “perfect distribution” compared to the global BTC/USDT market, despite being accused of fudging volume and being awarded the “E” grade by CryptoCompare.
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