
Bitcoin ETF research finds that 95% of Bitcoin volume is fake - mlerner
https://twitter.com/BitwiseInvest/status/1109114656944209921
======
gruez
>CoinBene is reported to be the largest bitcoin exchange in the world

I literally never heard of this exchange before today. If some random exchange
popped up and overtakes all of long time "legitimate" incumbents (eg.
coinbase, bitstamp, kraken) _combined_ , I'd be suspicious of that too. The
same applies for most of the other exchanges near the top of the list on slide
22. In reality, I don't think seasoned traders are affected by this, only
newcomers and the occasional journalist.

~~~
nostrademons
"Reported" by CoinMarketCap (and it's dropped to #11 now):

[https://coinmarketcap.com/rankings/exchanges/](https://coinmarketcap.com/rankings/exchanges/)

I think it's pretty well known within the crypto community that CoinMarketCap
exchange volumes are bullshit - other than Binance, the top 45 basically
consist of exchanges I've never heard of. They're bullshit because there _is_
a ranking, one that many newbies would refer to, and it's trivially easy to
fake volumes through wash trading or just lying if you own an exchange. It's
been like that for at least a couple years too - when I first found
CoinMarketCap, the top exchange was BitMEX by a large margin, which everybody
said to stay away with and doesn't even appear today.

~~~
mygo
what would you say are the top exchanges right now?

~~~
flurdy
In the original twitter thread:
[https://twitter.com/BitwiseInvest/status/1109114665240616962](https://twitter.com/BitwiseInvest/status/1109114665240616962)

 _" 5/ Only 10 exchanges have >$1M real daily bitcoin trade volume. @binance,
@bitfinex, @krakenfx, @Bitstamp, @coinbase, @bitFlyerUSA, @Gemini, @itBit,
@BittrexExchange, @Poloniex / @circlepay You can see the daily BTC trade
volume on these exchanges at:
[http://www.bitcointradevolume.com](http://www.bitcointradevolume.com) "_

Note: Not verified by me, just relevant to the source.

~~~
nostrademons
Yeah. Subjectively (and this is with a U.S. bias), I would've ranked them as
Binance, Coinbase, Bitstamp, Gemini, Bitfinex, Bittrex, Kraken, Poloniex,
Bitflyer, Circle, ItBit.

[Now I'm going to peek at the actual volume rankings. Hmm, not bad - Kraken is
doing better than I thought, and I underweighted Bitfinex and Bitflyer per
U.S. bias, but it's otherwise quite close.]

~~~
Not_a_pizza
Those match my extremely anecdotal observations in this arena.

------
floatingatoll
This presentation was given with regards to a proposed "Bitwise Bitcoin ETF
Trust" that the SEC is considering for approval.

Direct link to ETF research PDF linked from the thread:

[https://www.sec.gov/comments/sr-
nysearca-2019-01/srnysearca2...](https://www.sec.gov/comments/sr-
nysearca-2019-01/srnysearca201901-5164833-183434.pdf)

Interesting things to see in the hundreds of pages:

page 24: What Do Real Exchanges Look Like?

page 43: Trade Size Histograms For Suspect Exchanges

page 57: Applying All Three Analyses: BitForex

page 111: We Have Reached The Point Of Diminishing Returns For Improvements In
Efficiency

~~~
MuffinFlavored
Is the SEC going to approve it?

~~~
ceejayoz
I'd imagine the SEC doesn't leak that info in advance on HN.

------
Obi_Juan_Kenobi
You can go to any crypto-trading forum (i.e. /r/bitcoinmarkets) circa 2012 and
find that this was common knowledge. Everyone knew/knows that 'Chinese' volume
was mostly fake because the exchanges made it easy to do so with low fees.
Whether the exchange simply let this happen or actually deliberately created
the fake volume was immaterial.

UTXOs remain the best way to track overall market use and movement. Through
this, you can plainly see that the last year of market activity has been thin,
just traders competing with each other. With one notable exception in Nov/Dec
of 2018 causing the big dump. This was one of the most singular events in
Bitcoin history, with old coins fueling a major drop in price.

~~~
nosuchthing

      UTXOs remain the best way to track overall market use and movement.
    

UXTOs can be mass produced in bulk from single users controlling and scripting
multiple wallet addresses.

Looking at the Winter 2017 UXTO transaction logs, it's pretty clear a single
entity was (can/is) coordinating upwards of 10%-50% of the volume, the
clearest examples of this are throughout December of 2017.

------
modeless
This is by far the best analysis of the Bitcoin market I have ever seen. Super
interesting. As the Twitter thread mentions, this could actually be good news
in the eyes of regulators as it means the Bitcoin price is likely controlled
almost entirely by legitimate trading on legal and regulated exchanges rather
than the fly-by-night places that are faking their volume.

~~~
laurentl
Well, the study shows that there are legit exchanges, so there is some place
for the usual market forces to apply (and indeed, the price of Bitcoin on
these exchanges lies in a tight band, too small for arbitrage opportunities).
That doesn’t mean the price of Bitcoin can’t be manipulated by pump & dump or
other price manipulation schemes.

But still, the study (at least the highlights given in the twitter thread)
looks solid and well-presented.

~~~
hhorsley
pump and dump can take place in small cap equities as well. it will never be
impossible - the thing thats needed is the regulation / surveillance to do
enforcement on those who perpetrate it

------
seibelj
One villain here is CoinMarketCap, which obviously knows most of its listed
exchanges are fake yet continue to show their reported volumes. I believe they
are paid by fraudulent exchanges to do this. CMC's product is solid but its
values are corrupt.

~~~
hanniabu
They do their best to remove fake volume as far as they can tell. And in my
opinion it's best to list the exchanges and assets and let the users form
their own conclusions than to be a centralized gatekeeper.

~~~
seibelj
I work in this industry, and they _do not_ do their best. The Blockchain
Transparency Institute lists OKex as only 11% real volume[0] yet it is the 6th
biggest exchange[1]. Repeat for many other exchanges. Simply put, they need to
remove most of the exchanges.

[0]
[https://www.blockchaintransparency.org/](https://www.blockchaintransparency.org/)

[1]
[https://coinmarketcap.com/rankings/exchanges/](https://coinmarketcap.com/rankings/exchanges/)

------
dnprock
Faking volume is an issue with exchanges, not Bitcoin. Exchanges are in the
business of trading. They have incentives to transact Bitcoin. Bull market
produces more volume. Bear market has less volume. I take this as most Bitcoin
people now are HODLers. They actually see it as a Store of Value.

With this research, the Bitcoin ETF group is telling SEC: Our ETF will better
than other exchanges. Please approve.

~~~
bduerst
True, but when 88% of the large ($1M+) exchanges and 95% of transactions are
mostly fake volume, that's reflective of Bitcoin as a whole, wouldn't you say?

~~~
ohbleek
If I may, let me apply your comment to something else:

50% of phone calls made each day in the US are fake robocalls, that’s
reflective of the phone system as a whole, wouldn’t you say?

The fake volume may be reflective of bitcoin price or the lack of regulation
of bitcoin exchanges but I don’t think thenfake volume is reflective of
bitcoin as a whole.

~~~
bduerst
>50% of phone calls made each day in the US are fake robocalls, that’s
reflective of the phone system as a whole, wouldn’t you say?

Yes, I would! I think that deregulation has enabled the phone system to become
a terrible system. That's not a good analogy if you were trying to prove the
opposite.

------
mey
I find the title a little misleading, "95% of Bitcoin exchange volume is
fake." to differentiate from transactions performed inside the network.

~~~
lvs
Transactions in the last 24 hr were 10% of the market cap (i.e. ~$7b USD), so
the on-chain activity is therefore much higher than what's being claimed as
"real" volume here.

------
benj111
"When you remove fake volume, the real BTC volume is quite healthy given its
mkt cap. Gold’s market cap is ~$7T with a spot volume of ~$37B implying a
0.53% daily turnover. Bitcoin’s $70B market cap would imply a 0.39% daily
turnover, very much in-line with that of gold"

So people are using it as a store of value, rather than a medium of exchange?
This would count against it being used just to buy drugs etc wouldn't it?

~~~
kingo55
Why buy drugs/illicit things on an open, immutable and transparent ledger?

Best use cash and leave no trace.

~~~
Hamuko
Because you don't want to go meet drug dealers in an alley.

------
Macross8299
Some of the shady bitcoin exchanges and Bitcoin derivatives product offerings
really do remind me of bucket shops that were popular in the early 20th
century
([https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)](https://en.wikipedia.org/wiki/Bucket_shop_\(stock_market\)))

One difference is that the obvious remedy that was applied to bucket shops at
the time (regulation) doesn't seem to be as effective this time around due to
the international nature of Bitcoin markets.

~~~
buttcoinslol
BitMEX isn't like a bucket shop, it _is_ a bucket shop. Complete with price
manipulation to blow out shorts/longs when too many people are stacked on one
side of the action to pocket the margin deposits, repeat ad infinitum.

Check out some 15/30 min or 1h BTC charts, look for 'bart' patterns. Pumping
and dumping to wipe out shorts/longs, it's blatant and obvious.

------
andrewla
Already posted as
[https://news.ycombinator.com/item?id=19462894](https://news.ycombinator.com/item?id=19462894)
(EDIT: although this link is from the horse's mouth rather than the WSJ)

------
SlowRobotAhead
I have a couple questions!

Please correct me if I’m wrong, but it appears 9 of the largest exchanges are
regulated under New York laws.

1\. Is there a scenario where to US could now immediately stop almost the
entire bitcoin exchange process?

2\. If that’s the case, isn’t that entirely against the point of a
“decentralized” currency - in that it’s not worth much if you can’t
effectively trade it.

3\. If 95% of volume is being faked, which according to the histograms is
likely, what other discoveries about Bitcoin could be waiting to be revealed?

~~~
gpm
Bitcoin is resilient against shutting down the exchanges, it just means people
start new ones elsewhere. Value isn't (or shouldn't be) stored in exchanges so
there is no real damage.

I'd be far more concerned with the majority of the mining power being
centralized in China if I was invested in bitcoin... that's what can actually
shut it down.

------
NoblePublius
It’s telling to me that they speak of bitcoin only in reference to value
stores like gold and not in reference to utilities like p2p payments. Clearly
no one is using bitcoin to spend, and very few people are using it as savings
(at negative interest!).

------
sbarre
So what is the takeaway here? Is this ETF fund trying to make their
plan/offering more favourable or attractive by calling out this "fake" volume?

~~~
andrewla
They are showing that the methodology that they have for computing the NAV
(net asset value) is solid and based on exchanges that do not have fake
volume. Also that the effective volume and price sensitivity on those
exchanges is reasonable for the asset class. And finally that in order to
manipulate those exchanges sufficiently to affect the price and win an arb
against the ETF is infeasible.

~~~
hhorsley
Well said

------
tim333
As an occasional crypto trader I've noticed a lot of fake volume. On the coin
I follow
[https://coinmarketcap.com/currencies/dragonchain/#markets](https://coinmarketcap.com/currencies/dragonchain/#markets)
most of the volume is fake - most of the real trading is on Kucoin and the
stuff on Fatbtc and COSS mostly fake. They do it because they want to be seen
as the successful exchange so people use them. It's soon apparent if you
actually try trading that it doesn't work as advertised and then you often
have to pay a steep charge to get your money back or sometimes have problems
getting it back at all.

------
chx
What I do not understand: what is fake? The graphs these exchanges report?
What does it matter? I do not quite get it.

------
haolez
Fake exchanges will probably use this report to improve their wash trading
algorithms and make them look more legit.

------
mistrial9
a security researcher recently claimed that it was massively, overwhelmingly,
not-even-close, prices driven by monetary exchange policy within the PRC
(china), that caused the jump in BitCoin price.. because bitcoin was used to
move money out of the PRC.. but, things changed..

~~~
kingo55
Got a source on that? Keen to read up on it.

------
jonplackett
Anyone feeling like explaining why this is important to a cryptodummy?

~~~
ehrtt
It's not.

------
toomuchtodo
[https://threadreaderapp.com/thread/1109114656944209921.html](https://threadreaderapp.com/thread/1109114656944209921.html)

------
IkmoIkmo
Duh... Any exchange can pretend it's a large reputable player by showing fake
volume, it has nothing to do with blockchains.

Further, any with a substantial amount of bitcoin, e.g. $1m, who might gain
from their assets having a reputation as a means to transfer money, can create
$1b in daily volume at the cost of $1 per year on the blockchain, fully
automated.

The expectation that nobody on the planet will do this is obviously zero. So
you naturally get fake volume. I'd be surprised if it wasn't >90%.

------
fady
Binance standing strong. I'm glad to see what I already believed. The company
leadership is solid, and, CZ, continues to build a robust, secure exchange.
Removes coins that are crap, always keeps up to date with posts, maintenance
updates, new listings, etc.. and hardly ever crashes under extreme loads.
(remember 2017?).

CZ, keep up the great work!

------
Zamicol
This is well known/suspected in the cryptocurrency circles.

The problem is correcting for bad volumes.

------
hombre_fatal
Kind of a dumb headline though. One exchange can post 1e1000 btc of volume.

It also doesn't even mean the exchange is malicious. Some exchanges have 0
fees. So if someone using the exchange trades with themselves, it's 0 cost.

------
anovikov
That sounds surprising. How would you fake trades if blockchain is by
definition public? Can't people see the amount of actual bitcoin going to and
from exchange's bitcoin addresses?

------
908087
I doubt Bitfinex's volume is real, either. Tether is their fractional-reserve-
backed-by-loans-to-ourselves shitcoin.

------
fiatjaf
The only volume that matters is the amount of BTC transferred everyday on-
chain.

------
ineedasername
Over 200 slides. Clearly a different culture of use at the SEC for powerpoint
than in Silicon Valley. Is this common?

~~~
wheelerwj
yes, one is academic the other is for people who “are changing the world.”

------
superkuh
They've detected that 95% of the volume of their somewhat dubiously selected
bitcoin speculation markets _doing trades off-chain_ are fake.

This has nothing to do with Bitcoin blockchain or Bitcoin itself. It's all
about the speculation markets.

~~~
YjSe2GMQ
It's not dubiously selected, it's just 95% of all markets worldwide that offer
trading BTC. And their main point is that the remaining 5% is real and very
well arbitraged, suggesting a mature enough market for an ETF.

What kind of trading would you say is _on-chain_?

~~~
superkuh
I'm not saying trading should or even could be on chain. I'm saying the title
of this post is misleading and should be changed.

------
orev
But is it really? It would seem to depend on what you define as “trading”. If
I sell on an exchange, and someone on the same exchange buys, there’s no
reason for them to actually force transactions through the network. It only
needs to go through the network if the exchange doesn’t have enough on hand to
complete the transaction. This kind of net trading is fairly common. Just
because it didn’t go through the network doesn’t mean it didn’t happen.

~~~
UweSchmidt
The idea of a Bitcoin "exchange" is already weird, as most attributes of
crypto don't apply if exchanges are involved.

But if those exchanges don't even bother to execute trades on the real
blockchain, if the involved steps are just too much of a hassle, if they are
content with storing and processing those "transactions" in their SQL
Database, then...what is left of that old White Paper, is it anything else
than a sacred book of a religion no one believes in anymore?

~~~
reidjs
The saying goes bitcoins on an exchange aren't yours. All exchanges (that I
know of) allow you to pull tokens into your private wallet, at which point
they belong to you. It would be sort of foolish for the exchange to execute
trades on the real blockchain because it would be slow & expensive. Makes way
more sense to do that part with database transactions.

~~~
UweSchmidt
If it is impractical for professional organizations to handle crypto
transactions then it is impractical for anyone. If the blockchain works, if
it's good for anything, then ... use it!

~~~
Klathmon
But nobody is saying the blockchain is good for anything. The scaling problems
of on-blockchain transactions have been known since it started, and there has
been quite a lot of work done on ways to scale cryptocurrencies without giving
up many of the properties it has.

One of these is called Lightning Network for bitcoin, where (in VERY
oversimplified terms) the blockchain becomes an arbiter of sorts, and is only
used when there is a disagreement or someone tries to cheat someone else out
of money, or for very large transactions (large in terms of value, not
transaction size).

Saying "If the blockchain works, if it's good for anything, then ... use it!"
is like telling someone who wants to fly across the country to just drive it
since you were told that cars can drive anywhere in the country...

You could _technically_ use the blockchain for all transactions, but it has a
number of tradeoffs that most don't want to use for every single transaction.
And that's okay! Having the ability to make a choice between the "zero trust"
nature of the blockchain and trusting an exchange for faster/cheaper
transactions is awesome!

Hopefully things like Lightning Network will keep continuing and can add an
additional choice which combines just about all of the "zero trust" benefits
of a blockchain with the speed and cost of off-chain transactions.

~~~
UweSchmidt
"But nobody is saying the blockchain is good for anything."

I think crypto proponents very much said otherwise. The blockchain was of
course hyped as a practical, usable thing. Zero trust transactions, an
alternative to "fiat" currency, smart contracts, Venezuela, privacy and all
that. Those were real promises and arguments by the crypto community. What's
up with all that?

It seems the Blockchain is unusable, exchanges are just centralized places who
apparently don't even put your money on the real blockchain and possible
solutions are 'hopefully' in the future.

~~~
Klathmon
Well nobody can control what others say. I'd say that those actually involved
in cryptocurrencies (other than those who bought) knew this all along. It's
why there's been so many different attempts at fixing it!

But like I said above, a car taking magnitudes longer to cross the country
compared to a plane doesn't make the car useless for all purposes. Having the
option of being able to use a blockchain to transact without trust is a huge
benefit to many. It might not be what everyone wants for all transactions, and
it having downsides doesn't mean it's useless, but it still has immense value
to some, for some of their transactions. Bitcoin was not designed to be faster
than Visa, so saying it's useless because it can't keep up is kind of silly.

Blockchains and Bitcoin might be useless for you in their current forms, and
that's more than fine! But they are still improving and changing, and they
will almost definitely never truly be "finished". It's all about fixing the
problems that people have.

When Bitcoin was first introduced, it was one of the first to allow trust less
transactions without a central authority (again, a gross oversimplification).
People found value in it, and as it gained some popularity problems were
found, and people began working on solving them.

Those solutions are now beginning to have more widespread usage. Things like
Lightning Network aren't "hopefully" in the future, they are now. The usage is
still small, partly because the developers are intentionally taking things
slow (becaus bugs can be very expensive here!), but the theory seems pretty
sound. And many exchanges are already part of it and are planning to move to
using it for everything (and IMO any good exchange should love the idea of LN!
It takes all the risk out of holding people's money, it allows you to prove
your trading volume is real, and it is as fast as you can move the bytes).

I have no doubts that more limitations will be found, and LN itself already
makes some tradeoffs, so there will be more work after it's "done". And you
can continue to not use it, and you can continue to criticize the ecosystem
based on what charlatans and assholes said, but I believe in this tech and
there are many people who will continue working on it and improving it for
those who want it, for the use cases they want it for.

