A new framework for the analysis of the reliability of volume data of cryptocurrency exchanges developed by the crypto analytics firm, Coin Metrics, has revealed that the trading volume figures of only 13 cryptocurrency exchanges are reliable. According to the firm, the actual trading volumes are just about one-tenth for most of the exchanges.
Data Falsification by Exchanges
Most exchanges, especially the ones that list illiquid altcoins, are notorious for boosting volumes through data falsification. According to a Coin Metrics data scientist Jon Geenty, they apparently do this to attract traders to their platform and improve their ranking.
How Does the Framework Work?
Coin Metric’s new framework, instead of aggregating trading volumes from the most popular crypto exchanges, funnels data from 13 trusted spot exchanges, which include-
The Coin Metrics framework subjected the exchanges to a three-pronged litmus test for volume correlation, web traffic analytics, and qualitative features.
The first metric measured the correlation between an exchange’s price feeds with the price feeds from well-regulated crypto exchanges like Kraken, Gemini, and Bitstamp. Only exchanges with at least 80% correlation passed this test.
The second metric cross-checked the exchange’s reported volume with its daily web traffic with the view that the inflating volume numbers of an exchange tend to have a higher ratio of volume compared to other exchanges.
The third Coin Metric test analyzed the exchange’s qualitative measures in its features, which included its KYC requirements, regulation status, fiat deposits enabled, and data availability. Only exchanges that scored at least 50 out of 89 passed this test.
So, Which Are the Least Trustworthy Exchanges?
Only one exchange i.e. Malta-based OKEx failed all the three categories. However, other exchanges like BiBox, HitBTC, LBank, and ZB.com also failed in two of Coin Metrics tests.