Almost 95 percent of Bitcoin trading volume is fake and that can be attributed to a number of cryptocurrency exchanges that are artificially manipulating its trades. The effect, is that you might get to buy at a price that is higher than usual, or you might be led to believe a coin’s price is about to spike when in actuality, it isn’t.
How to Determine if a Crypto Exchange is Faking its Trading Volume
That being the case, how can you tell a virtual exchange whose trading volume is as a result of human action and one that is being manipulated? A lot of factors come into play. One of such is the sharp increase and decline in the amount of Bitcoin that is traded at each instance.
Here’s what it looks like: At some point, you may decide to buy just $100 Bitcoin and at a later time, a whole Bitcoin currently priced around $4,071. We can assume that others are going to exhibit the same behaviour and as such, the trade amounts on
legitimate crypto exchanges will greatly vary.
Manipulated Trading Volume Shows Equality in Amounts Purchased
In the case of an exchange where the volume has been manipulated, the volume for each order will almost be evenly distributed. What you’ll get, is a chart that closely resembles that of a hill. The image below will give you a clear picture of the point we’re trying to drive home.
Bitwise, a cryptocurrency index fund provider based in San Francisco also stated that almost 95 percent of the trading volume reported for Bitcoin is fake. While trying to get the Securities and Exchange Commission’s (SEC) approval for its Bitcoin Exchange Traded Fund (ETF), Bitwise said it could separate these fakes in order to report the real trading volume of the virtual asset.
Manipulating Trading Volume to Give Investors a False Impression
While a manipulation in trading volume and increase in buy and sell order on the part of the exchange could be in a bid to give users the impression that it is popular, it can misleading. Fake accounts can be used to effect this, thereby falsifying data that the cryptocurrency has received attention on other exchanges whereas it has only be manipulated at one end.
BTCNN on January 21 also reported of the arrest of two operators of a Korean-based cryptocurrency exchange, Komid. The duo was said to have manipulated the trading volume on their platform using bots which enabled them to earn $45 million.