New research takes a deep dive into popular cryptocurrency exchanges to check for illegitimate trading volume

  • 04 July 2019, Thursday, 19:30

The cryptocurrency market and cryptocurrency exchanges, in particular, have been mired in several controversies mainly because of data manipulation and number tampering. In a new research by Alameda, exchanges were assessed based on several criteria aimed to classify legitimate information.

The first method was to manually investigate the trading history of the website and see if ten percent of the data obtained manually was equal to the data that was in the company’s records. If it wasn’t, the exchange was considered to fail the test. The second test looked into the fraction of prints which crossed the best bid and offer on the platform. Alameda stated that this metric leaves “significant room for error” and “exchange’s volume is likely legitimate according to this criterion if more than 50% of its trades occur at acceptable prices”.

The research also looked into separate exchange volume comparison with an exchange’s typical volume followed by a comparison of the exchange’s total exchange order book depth to its trading volume. Alameda revealed that top cryptocurrency exchanges like FCoin, BitfForex and Coinbene etc, all failed the test because the exchanges were known for dabbling in transaction mining.

The report further stated that most of the exchanges held a score close to zero or close to all of their trades crossing the best bid or offer. This meant that most of the exchanges failed the fraction print test too. The Alameda research further focussed on the ratio between the sum of all the exchange’s order books and the reported average daily volume. The end result showed that a majority of the exchanges scored below 0.005, which was the benchmark. The aforementioned data was used to point out that the transaction volumes on a majority of exchanges were still mismatched.

An earlier report by Bitwise had also stated that popular exchanges like HitBTC, Huobi and OKEx were skirting the line between real volume and real volume. On the topic of OKEx’s trade volume, the report quite clearly spelled,

“While there may be a smattering of real bitcoin volume on OKEx, the charts are clear: the vast majority of bitcoin volume here is entirely fake.”