Fake volumes: Are these figures even right?
An average of $70 billion in cryptocurrency are traded on a 24 hrs basis across recognized cryptocurrency exchanges and a tangible more traded across unnoticed exchanges and swap services with Binance exchange recording the highest daily volume of cryptocurrency trading. A pretty solid and very impressive figure, you’d expect this to come with a lot of liquidity and also price stability.
For a market trading this amount of dollars in total worth, some stability is expected, but the crypto space is as a matter of fact the most volatile market. A 50% price drop is almost traditional in the crypto space. This will make the news headlines in traditional stock markets. Stocks will hardly lose their value with such speed and to such extent. Get it right, stocks also lose their value at intervals, but a price drop of up to 10% only comes as a result of a serious news, 30% price drop results from news equivalent to a company folding. But this is not the case in the cryptocurrency space.
Seeing such drops in cryptocurrencies is ‘normal’. Bitcoin and ethereum might relatively be an exception to this, but volatility is common and alarming in the crypto space, for a market which claims such volume and liquidity, this is very unusual. This surely gets you asking a couple questions. Are these volumes even real? Why a cryptocurrency which trades over $2 million in 24hrs will hit a 40% price drop within an hour should be a mystery. A stable-looking market stumbles so quickly and things goes south in very short while.
Much of cryptocurrency’s volatility steams from manipulated markets and market statistics. Fake sell and buy walls, wash trades and artificial pumps. These unscrupulous acts are more pronounced in the crypto space and one can hardly trust any statistics from the cryptocurrency market, this even makes involvement in cryptocurrency a bigger risk to take. Precautious investors hardly invest much in cryptocurrencies.
If we had to do away with the wash trades and stick to frank trade statistics, reported daily volumes from most exchanges are actually very falsified and true liquidity is much lower that what is reported. To address this issue, coinmarketcap, the earliest cryptocurrency tracking service introduced a technology which was supposed to track and exclude fake volumes and wash trades, but for one reason, this hasn’t really tackled the issue, despite making some good progress, a showcase of how deep this has eaten into the industry.
Blame it on the traders, blame it on the exchanges and probably the associated project teams, but regardless of who gets the blames, fake volumes make the cryptocurrency appear solid but actually makes it weak. For many, organic price growth is rare and if you have to grow in value, you’ll have to ‘pump’ the price. This creates room for inferior projects to soar in value while impressive projects who are unwilling to play the ‘pump game’ wallows in obscurity. Fake volumes and wash trades accounts for up to 40% of the daily cryptocurrency trades especially for cadet cryptocurrencies. And sometimes when a cryptocurrency price ‘jerks’ the roots are not far from artificial pumps and manipulated buy and sell walls. As result, these solid looking walls clears in no time and the price comes crashing back to its initial value and even lower in some cases.
These acts are not only seen in cryptocurrency markets, however, it more pronounced here, and the result is evident in the volatility of cryptocurrency prices and trade statistics which are not trustworthy for making investment decisions.
But the question still stands, ‘are these figures even right’?