CoinMarketCap.com has removed the minimum volume requirement for exchanges to list on the industry’s go-to aggregator of cryptocurrency data. Before that, the exchange reportedly should have over $50,000 of daily trading volume to qualify for listing with the CMC ranking system.
Though the change was made earlier this week, CoinMarketCap did not publicize it until midday on Thursday.
The site has also acknowledged the concerns aired by the crypto community about inflated turnover figures. And in an attempt to obtain a true picture of global cryptocurrency volume, it introduced new features that account for the many variables that affect trading volume and allowed users to filter trading venues according to them.
In a blog post, the CMC explained how some exchanges use various tactics to inflate their trading volumes.
Although volume is arguably the most important metric for a cryptocurrency exchange, most enthusiasts are well aware that the prices on CoinMarketCap.com look skewed, and volumes are ‘relatively’ fabricated.
The FX Global Code – Is Self-Regulation the Future of the Industry?Go to article >>
Wash trading and artificial volume inflation
A clear example was the aggregator’s decision earlier this year to remove a group of Korean cryptocurrency exchanges from its price calculations. At the time, the CMC said these trading platforms artificially inflate prices and market caps, as they were trading at a very steep premium over the rest of the world.
A more recent example was the tremendous success of some new crypto exchanges, which have seen their market capitalizations go up quite spectacularly. Despite their young age, they managed to break into the CMC’s list of top venues and even overtaken renowned some crypto exchange titans.
CoinMarketCap inexplicitly admitted that a bit of wash trading and artificial volume inflation is to be expected in a thoroughly unregulated market. What it did not acknowledge though was the magnitude of the fraud.
Specifically, the blog post attributed the discrepancy across exchanges to fee-free/transaction mining models, low fee models and artificial volumes/wash trading. These models allow traders and bots to send coins back and forth for free, imitating a high volume.
The CMC has further explained a number of ways used by exchanges to make volume look like more than its actual figure. This includes employing market-making services and bots to trade their own coin, charging extremely low fees to encourage more trading activity and rebating users with the exchange’s coin when transactions are made. For the latter model, coins are “mined” in the process of transacting, and exchange fees are then refunded to the user.