In their relatively short existence, cryptocurrencies have managed to rack up trading volumes that would be the envy of ordinary stocks. Consider that bitcoin, which was introduced to the world in 2009, has had trading volumes of between $3 billion to $6 billion per day in the last three months. The trading volume for General Electric Company (GE), which became a listed company in 1962, peaked at $1 billion (approximately) during the same time period, according to Yahoo Finance. (See also: Bitcoin Trading Volume Plunges To Two-Year Low). 

How do cryptocurrency exchanges, which are the main beneficiaries of high trading volumes because they rake in trading fees, record such high figures? Analysts and journalists have analyzed order books at exchanges and are raising red flags. 

A Mismatch In Incentives And Website Visits

A recent Bloomberg piece points out anomalies in Singapore-based cryptocurrency exchange Bitforex’s trading volume. The exchange has an incentive program linked to the transaction fees charged by the exchange for users. The Transaction mining program offers users $1.20 in digital tokens for each $1 they spend in transaction fees. Several users have multiple accounts on the platform and they often use algorithmic programs known as bots to increase trading volume between their accounts and earn as many tokens as possible. The transaction turns out to be a profitable one if the distributed tokens increase in value. Such trades are known as wash trades and the US Justice Department has already opened an investigation into cryptocurrency exchanges involved in the practice. Calvin Cheng, an entrepreneur in Singapore, told Bloomberg that most trades on cryptocurrency exchanges are “bogus” trades. Asim Ahmad, founder of Eterna Capital – a blockchain investment firm, said even the largest exchanges cannot be trusted to report accurate trading volumes. (See also: Crypto Trading Volume Soars, Beating Some Stock Exchanges). 

The other red flag for Bloomberg is the absence of a correlation between the number of website visits and trading volumes. Cryptocurrency exchanges with few website visits are reporting trading volumes that run into billions of dollars. According to Bloomberg, 40% of trades at the top 30 exchanges ranked by, a website that aggregates cryptocurrency prices, come from eight venues with the highest volume to visits ratio. Again, there is a disconnect between the reported website visits for Bitforex and its transaction volume. Liquid, a Japanese exchange that is reported to be another culprit in the Bloomberg piece, said its high trading volume numbers may be due to automated traders, who typically conduct trades using algorithms instead of visiting its website. 

Why Are High Trading Volumes Important? 

Large trading volumes at crypto exchanges serve two purposes. First, they help avoid slippage or drastic price movement in a cryptocurrency’s price upon a significant sale. Second, they are testaments to the trustworthiness of a cryptocurrency platform and indicators of user trust in an incipient industry that has zoomed into mainstream focus on the back of scandals and scams. Trading volumes are also important indicators of price movement: an increase in trading volume is generally considered a precursor to a big price move. 

This is not the first time that cryptocurrency exchanges have been accused of fabricating trading volume figures. In a post earlier this year, trader and investor Sylvain Ribes found that OKEx, a China-based exchange which has among the highest trading volumes, had enormous slippage when a sale of cryptos worth $50,000 was made. The results were similar when he revised the trading amount to $20,000. Ribes concluded that approximately 93% of OKEx’s volume was fabricated. 

Experiments at other cryptocurrency exchanges revealed similar data points. At Huobi, another big China-based exchange, he estimated that 81.2% of volume was fake. HitBTC and Binance, which is arguably the biggest crypto trading platform, showed a similarly large slippage amount. 

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