The story that trading volumes on centralized cryptocurrency exchanges are mostly falsified is getting a continuation. The March 22 edition of The Wall Street Journal reported, citing a study of the Bitwise Asset Management company, that “Nearly 95% of all reported trading in Bitcoin is artificially created by unregulated exchanges.” The question arises on what or who can we believe? DeCenter delved into the situation.
“Fake” Bitcoin Trading Volumes: Hooray for Bitcoin ETF?
Any statements, especially those concerning such relatively young industries as blockchain and cryptocurrencies, should be perceived not even with skepticism, but with a desire to double-check the proposed data or, if impossible, understand the context or why something is happening. Thus, Bitwise Asset Management provided information that virtually all Bitcoin trading is falsified, and it submitted its research to the U.S. Securities and Exchange Commission (SEC). Earlier, the organization also sent to the SEC an application for obtaining permission to launch a Bitcoin ETF, in which it included data on “fake” turnovers.
It is obvious that Bitwise Asset Management wants to rid the field of competitors, that is, some crypto exchanges, as written in Zero Hedge. Analyst Joseph Young also believes that such a report is beneficial to those interested in obtaining Bitcoin ETF approval from the SEC since the study seeks to show that most part comes from regulated platforms like Coinbase that are understandable to the SEC. In the report, Bitwise Asset Management concluded that generally, no centralized crypto exchanges play a significant role in shaping the price of Bitcoin since the futures trading volume for this cryptocurrency turns out to be “substantial” and is something that the SEC should like. But this is unlikely to help in the approval of a Bitcoin ETF as Terry Duffy, head of the CME Group, frankly admitted that the SEC usually perceives only cryptocurrency secured by fiat, that is, stablecoins.
In addition, one should not think that centralized crypto exchanges themselves do not attract criticism in the cryptocurrency community. Some of the fresh information on the matter is the opinion of Litecoin creator, Charlie Lee, who is confident that when people learn to store funds invested in cryptocurrencies without such platforms, crypto exchanges will merely disappear.
The Higher Bitcoin Trading Volume, the Higher the Trust?
Meanwhile, CoinMarketCap responded to the information from Bitwise, recognizing that there were inaccuracies in collecting data from crypto exchanges. But it offered to “consider all opinions” so that resource users could come up with indicators that would adequately reflect the realities of cryptocurrency trading. At the same time, eToro analyst Mati Greenspan was surprised that the aggregator did not offer to refuse to publish information from sites that provided incorrect data. The absence of such a step means that there is no reliable evidence that some crypto exchanges really deceived and overestimated their performance.
The method of “treating” incorrect data with the help of new metrics is becoming popular, as another aggregator, Messari, has expanded its information panel to ten indicators. At the same time, the leadership of Messari chose to completely trust Bitwise, in which Kraken, Coinbase, and Binance were called “reliable” crypto exchanges, and it was based on the study of four trading days in March and the activity of 81 crypto platforms. The fact that independent verification of these studies is needed is noted in Weiss Ratings. Whether such a public audit was conducted, for example, with respect to Binance, is an open question.
Curiously enough, Messari also stated that the presence of “fake” trading volumes in the information field hinders the arrival of institutional investors. Meanwhile, it seems that the representatives of such investors will always look for “ideal conditions” for working with cryptocurrencies, which shows their attitude to the custodial services that have already appeared. But they are still not satisfied with a considerable number of them.
The Market Remains Calm
The fact that the Bitcoin market is not so bad is proven by that it remained calm after such news. Since early March, cryptocurrency No. 1 has been trading in the corridor between $3,849 and $4,015. This means that in recent months, the market has not been able to “swing” in one direction or another, although the volume of trade on leading centralized venues has noticeably decreased. In such a situation, it is obvious that decentralized platforms have become just a tool that can stabilize the market. And it is incidentally symbolic that the participation of institutional investors in the cryptocurrency market can generate strong fluctuations on it, and the gradual abandonment of the classic Cboe exchange from playing with Bitcoin futures has also become a factor in stabilizing the market. Meanwhile, as entrepreneur Tim Draper admits, “people can manipulate the price, it can rise or fall depending on the arrival of a major player or owners of large fortunes in cryptocurrencies who decide to sell them.”
In connection with the fake volumes of Bitcoin trading, a question arose about the real index of the dominance of this cryptocurrency. Researcher John-Paul Thorbjornsen claims that it is at least 80% in March of this year, although CoinMarketCap gives a figure of only 50.7%. The appearance of such a study almost at the same time as the Bitwise report could have shaken confidence in the market, but this did not happen. Moreover, Bitcoin remained stable, but altcoins have gone up, confirming that the CoinMarketCap version of the cryptocurrency No. 1 dominance is at an eight-month minimum. As Mati Greenspan noted with regret on March 25: “73 altcoins saw double-digit gains today, and 17 of them even saw more than 100%. I’m not holding any of them.”
What will happen next? One of the most anticipated events is the halvening. The number of blocks left to create before it happens can be observed in real time. On May 20, 2020, miners will face the fact that the remuneration will be halved from 12.5 to 6.25 Bitcoin for each new block. In the history of Bitcoin, this has happened twice already, but how will this affect future events? In general, Bitcoin is becoming more expensive, but it would be incorrect to automatically link this with the halvening, as the most critical unknown factor in such an “equation” is the state of demand for the cryptocurrency. Even Bitcoin miners do not necessarily put assets up for sale.
It is worth noting that the halvening is not only a property of Bitcoin. In Litecoin, such a process occurs every four months, and the remuneration for each block from August of this year will be reduced from 25 to 12.5 LTC on the network of this altcoin. Currently, the asset price is about $60. And the demand for Litecoins is growing at the moment, as the daily turnover of trade in the altcoin has risen above $1 billion. Those who advise buying Bitcoin before it goes up also have “competitors” who pay attention to the fact that Litecoin is also an investment asset that is attractive from this point of view. A noticeable increase in price is expected after the halvening for LTC from the current $60 to $250. As another analyst Bitcoin Litecoin Master recalls, LTC noticeably went up in July 2015, a month before the halvening, and a similar rally is expected in July of this year. As DanRocky emphasizes, “Litecoin’s mining reward halving in five months will not impact price afterwards, but there might also be speculation around it right now.” The hash rate is growing for the two cryptocurrencies in anticipation of the halvening, and for Bitcoin, the discrepancy between the applied power curve and price dynamics is at a historical maximum, indicating that cryptocurrency number 1 is now oversold at a record value.
Why Buying Bitcoin Is Becoming Impossible
The experience of forecasts shows that even “reinforced concrete” arguments in favor of the beginning of the “bullish” market of cryptocurrencies did not always turn into reality. The elusive Bitcoin remains so for market researchers. Analyst Saifedean Ammous is sure that “Bitcoin is a completely new animal, different from all before it. Your old toolbox for analyzing bubbles, currencies, and stocks doesn’t work on it.” Indeed, the current bear market is completely different from the previous ones since investment in the cryptocurrency infrastructure demonstrates serious growth, which was confirmed by Joseph Young: “This bear market, so far, has exceeded expectations. Companies are building and expanding very rapidly.” Obviously, Bitcoin has already become more than an asset in which to invest and then “run off” into fiat as it rises. In the future, buying Bitcoin will not be possible at all due to its extreme costliness. Satoshi will be in use as parts of Bitcoin. And the owners of one whole Bitcoin can then assume that they have perfectly provided for their lives during retirement.