As you may know, CryptoCompare created its own exchange benchmark. Why? The company recently posted in order to explain its decision.
According to the company, exchanges changed in many ways in the last few years, however, there was one aspect that called out everybody’s attention: fake volumes. More and more people started to affirm that most of the trading volumes were actually fake or manipulated.
The volumes were manipulated because many companies were actually involved in wash trading, which is basically the semi-illegal practice of trading with yourself to fake your volumes to look higher than they are.
This is why the Exchange Benchmark is an important tool, as it will help the company to create the trusted volume of the exchanges, which helps to address the fake volume issues. The technology uses a qualitative and quantitative metric which will show the adjusted trusted volume of exchanges.
CryptoCompare also explained that the issue with fake volumes started last year. After the crypto mania, trading volumes started to decline a lot. This made several companies see their quantity of users go down radically, which prompted them to fake their volumes in order to continue looking relevant in this scenario.
In fact, the low-value exchanges were the most with higher volumes when compared to 2017 exactly because they were faking them. The company correlated the spikes in trading with the value of BTC and the exchanges that passed the benchmark with high grades saw their trading went up as the prices did and down following the prices too.
The low-quality exchanges, however, saw their volumes spike a lot when the prices started to crash. Many of these exchanges appeared out of thin air during 2018. They are not as respected as Coinbase or Binance, just have high volumes, which are not even real.
Some of the bad exchanges, such as Coinbene and CoinEx, for instance, offered their tokens to traders. These tokens lost most of their value soon. They do not have a healthy business and they know it.
Binance, however, which uses its tokens to offer traders a chance to pay fewer fees, is only seeing the prices of its BNB tokens go up. Why? Because Binance does not have to fake volumes in order to be the most important exchange in the world.
The Bitwise report, which proved that most volumes were fake, was actually not that surprising for who was following the market during 2018. A certain collapse happened and many bad actors appeared. Companies with low volumes and suspicious of wash trading flourished.
Why use the benchmark? To give credit to the companies that deserve it. Not everybody is faking volumes and people have the right to know which are the companies that are.
The methodology enabled CryptoCompare to define which exchanges were engaged in healthy trading without needing to tie this to their rankings in rough numbers. The main page of the company was now also ordered by the grade of the companies, which goes from A to F, instead of their volumes.
The crypto market may be the victim of fake volumes from time to time, but it is also the truth that some companies are making an important effort to change this reality.
Author: Gabriel Machado