As the market matures, regulation tightens and competition intensifies, the share of phantom volumes on leading crypto exchanges is gradually shrinking. Yet the problem remains — most platforms still display inflated trading volumes.
Researchers at Coin Metrics developed an original approach to assessing the trustworthiness of exchange volume data. Using it, they found that data from just over a dozen trading venues deserve trust.
ForkLog takes a look at the new methodology and reveals which exchanges hold the most trustworthy trading-volume data.
- Analytical firm Coin Metrics developed a comprehensive approach to evaluating exchange trading volumes.
- Components of the new approach: correlation of metrics between exchanges, comparison of trading volume and site traffic, assessment of qualitative indicators.
- Only 14 exchanges’ data pass muster.
The Trusted Volume Framework from Coin Metrics, grounded in quantitative and qualitative indicators, aims to increase the accuracy of volume assessments and the objectivity of cross-platform comparisons.
Researchers assessed popular venues in three stages:
- determining the degree of correlation between trading volumes across platforms;
- analysis of web traffic;
- analysis of a range of qualitative indicators.
First metric illustrates how closely platform price data correlate with the indicators of exchanges with a long history and solid market reputations.
“In the course of the study, we examined the hourly trading-volume data of regulated American exchanges that have been around for more than one year,” explained representatives of Coin Metrics. “These venues support fiat United States dollars, which further strengthens trust in them. The list includes Bitstamp, Bittrex, Coinbase, Gemini, itBit and Kraken. The trading-volume data were collected for the period from June 1 to June 30, 2020.”
Experts noted that during periods of heightened volatility spikes in trading activity across exchanges should be roughly comparable in magnitude. Conversely, during sideways movement, activity across venues should decline more or less evenly. Accordingly, exchanges with fake trading volumes will stand out against platforms that disseminate more credible data.
In the figure above, the correlation of trading volumes across various exchanges for some popular pairs with the indicators of Coin Metrics’ “trusted” group of venues is illustrated. Assets are sorted by how closely they correlate with Bitcoin.
Analysts estimate that any exchange with a correlation above 80% passes this test. In the table below see that in the trio of leaders are Coinbase and Kraken among American venues, and the oldest European exchange Bitstamp. The most visited Binance sits in fourth place.
Second stage of validation involves assessing the relationship between the exchange-reported trading volume and its daily web traffic.
“In theory, trading volume on an exchange should correlate to the number of traders visiting the site. An increase in users should drive volume higher, and vice versa,” emphasized Coin Metrics.
Researchers believe that exchanges disseminating “inflated” data would exhibit a relatively high volume-to-trader ratio compared with other exchanges.
Analysts compared trading volumes across exchanges with the number of page views on their sites over 24 hours. The result is illustrated in the diagram below.
In the next diagram, a similar comparison is shown, but this time considering visits (per SimilarWeb) rather than page views.
The highest figure turned out to be Bibox — $2,502.67 per trader. Consequently, the likelihood of fake data on this exchange is extremely high.
“Any exchange with a figure above $50 inspires less trust compared with regulated exchanges, where the average is $21.96,” the researchers noted.
On the scatter plot below, it is visible that exchanges with relatively low ratios of visits and page-views to trading volume lie close to Coinbase, Gemini, Bittrex and other “trusted” exchanges.
OKEx, HitBTC, Huobi, Bibox, LBank, Liquid and OKCoin stand apart on the sidelines of the “trusted” exchanges.
During the final stage of the study at Coin Metrics, exchanges were evaluated against a number of qualitative criteria, including:
— support for REST API and the WebSocket protocol;
— access to historical trading data and other information in real time;
— presence of trading policy and market oversight;
— requirement to pass KYC procedures for basic trading operations;
— proposals for insured deposits;
— the ability to deposit and withdraw fiat money;
— level of trading fees;
— listing standards, etc.
In the top three for qualitative characteristics were Coinbase, Binance.US and Gemini.
Any exchange that fails to score at least 50 points in this test failed it. Based on the table, Bibox and OKEx are on the edge due to a high ratio of trading volume per visitor. KuCoin and ZB.com also received low scores.
Below is a consolidated table with the results of the three tests:
As the table shows, only one exchange failed all three tests — OKEx. Four trading venues — Bibox, ZB.com, LBank and HitBTC — passed only one stage.
Fourteen exchanges managed to pass all three tests:
- Binance.
- Binance.US.
- Bitbank.
- Bitfinex.
- bitFlyer.
- Bitstamp.
- Bittrex.
- CEX.IO.
- Coinbase.
- Gate.io.
- Gemini.
- itBit.
- Kraken.
- Poloniex.
The list is current as of July 1. Coin Metrics will periodically update it.
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The problem of fake trading volumes on exchanges remains relevant for the industry. Many firms strive to improve their methodology for assessing exchange activity by proposing original approaches. As a result, ratings of trusted exchanges among different analytic resources may diverge from one another.
Below are services that aim to filter out fake trading volumes from exchanges:
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Coin Metrics researchers concluded that exchanges with a relatively high volume per trader are likely to transmit data far from reality. Such platforms usually receive low scores on qualitative indicators.
A comprehensive framework for evaluation, combining quantitative and qualitative indicators, can filter out many exchanges with inflated activity figures, and in the long term — build more objective rankings.
There is a possibility that as competition among exchanges intensifies, regulatory uncertainty eases and the industry matures, the problem of fake volumes will continue to fade.
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