CryptoCompare, an English cryptocurrency data analysis firm, has launched a unique exchange benchmark product which would help provide safeguards against false exchange volume reports.
On June 12, 2019, the firm revealed that its new product was developed as a means of stemming widespread concerns that numerous crypto exchanges around the world have been inflating their trading volumes.
Eliminating Faked Cryptocurrency Exchange Data
Increasingly frequent reports of wash trading and the inflation of trading volume numbers by crypto exchange platforms demonstrated “the need for a ranking methodology that does not rely on aggregate volumes,” CryptoCompare stated.
It further suggested that the problem was aggravated because lower-quality exchanges have increased market share by 30 percent over the past 12 months. This trend led many crypto exchange platforms to succumb to the pressure of inflating numbers for higher commercial values, in order to stay relevant in the rankings.
Co-founder and CEO of CryptoCompare, Charles Hayter, commented on the product and its purported impact on influencing the decisions of potential and existing crypto investors.
“In response to industry concerns over inflated volumes and the lack of reliable metrics for assessing cryptocurrency exchanges, we are excited to launch the CryptoCompare Exchange Benchmark,” he said. “We look forward to bringing greater transparency to the digital asset class and improving decision-making for market participants by providing a dataset they can trust.”
Bitcoin's Correct Market Size
In March 2019, cryptocurrency index fund provider Bitwise Asset Management stated in a report to the U.S. Securities and Exchange Commission (SEC) that up to 95 percent of the information found on unregulated crypto exchanges was either fake or noneconomic in nature.
The report was part of a proposed rule change on the company’s application to launch a bitcoin exchange-traded fund, and in it, Bitwise claimed to have gotten its data from the crypto statistics platform CoinMarketCap, which it accused of holding a vast majority of the suspected bogus data.
Given how popular that statistics platform is, Bitwise opined that it had contributed to spreading a “fundamentally mistaken impression” of the bitcoin market’s actual size.
Summarily, the firm claimed that about 95 percent of the reported volumes on exchanges were fake and that the actual bitcoin market is “significantly smaller, more orderly, and more regulated than commonly understood,” with a realistic value of about $273 million.
To help with this and provide added accountability concerning exchanges and their trading volumes, the exchange benchmark from CryptoCompare will rank exchanges based on both a qualitative (due diligence) and quantitative (“market quality based on order book and trade data”) approach.
Ranking the Most Trustworthy Exchanges
Essentially, the benchmark will deviate from the conventional ranking method of grading exchanges based on aggregate volume and use “correlation-of-volume-to-volatility and standard-deviation-of-volume” inputs instead.
CryptoCompare claims to have applied the benchmark’s ranking methodology on exchanges for May 2019, and according to its findings, the top-10 most trustworthy exchanges are Coinbase, Poloniex, Bitstamp, bitFlyer, Liquid, itBit, Kraken, Binance, Gemini and Bithumb.
The firm’s research unit also released a detailed outline of the benchmarking methodology. Per the release, the technology will feed into its aggregate indices to establish references for the top trusted exchanges, thereby providing investors with a reliable dataset.