Despite recent testimony from Bitwise to the U.S. Securities and Exchange Commission (SEC), which stated that up to 95% of Bitcoin trading volume is fake, quant trading firm Alameda Research deny the validity of this claim, instead of arguing that the truth is far less clear.
Bitwise Asset Management, an American self-styled authority on crypto trading and one of the largest providers of index and beta crypto-asset funds, offered its view in a lengthy report, drafted as supporting information to a presentation to the SEC on March 2019.
Aggregating data from over 80 exchanges, Bitwise researchers claim that of these exchanges, just 10 could claim to have 100% genuinely reported trading volumes; with these top ten exchanges only accounting for 5% of Bitcoin’s trading volume collectively.
As one might imagine, among the 10 honest exchanges were major names in the cryptocurrency markets, including Binance, Bittrex, Kraken, and Gemini. However, is Bitwise’s expert opinion strictly true, or could it have misjudged real vs. reported Bitcoin trading volumes?
Alameda Research
Alameda Research, founded in October 2017 in the U.S., is a quantum trading firm managing over $100 million in digital assets, and trading an enormous $600 million to $1.5 billion per day across thousands of digital asset pairs. Similarly, the firm currently takes 2 of the top 10 spots for the highest profits on the BitMEX leaderboard.
Like Bitwise, the firm produces its own research and reports on the state of the digital asset industry, including a dedicated volume monitor as part of its cryptocurrency derivatives exchange FTX.
Alameda’s Trading Tops Reported Fake Volume
So, why is Alameda Research so sure that Bitwise’s claim is inaccurate? Speaking to YouTube crypto channel Venture Coinist on July the 17th, CEO and Co-Founder of Alameda Research, Sam Bankmanfried, claimed that the data Bitwise provided could not be accurate.
In the interview, Bankmanfried explained:
“We ourselves trade more on some of these exchanges each day than [Bitwise] claim trades total”
Responding to this, the interviewer pointed out that if this is the case, Bitwise’s claim within its report falls dramatically short of the real trading volume.
Bankmanfried continued to say that:
“If you’re really deep in crypto and trading on all these platforms, you know the answer already, if you trade on Huobi, you trade on OKex, you trade on Binance, you know that there’s a lot of real volume there. You try and trade Bitcoin to Tether on OKex, you can do it – there’s liquidity, there’s size.”
Those who regularly trade on digital asset exchanges, Bankmanfried argues, will know that real volume exists, as they are able to fill their orders – although to what extent wash trading affects markets is unknown.
A Balanced Approach
However, Bankmanfried did admit that some exchanges were likely to have fake volumes. Taking a balanced approach, he explained that it was easy for two groups to adopt contrasting narratives.
On one side, there are parties such as Bitwise who believe that the majority of reported trading volume is fake or wash traded, and on the other side there are those who vehemently deny any notion of fake volume reporting.
The truth, Bankmanfried says, is somewhere in between:
“You look at the headlines from Bitwise, and basically it says there’s no real crypto volume outside of America… There’s a lot of fake volumes, and there’s also a lot of real volumes, and humans are really bad at expressing that. Subconsciously, it’s just really easy to buy into a narrative.”
Bankmanfried also pointed out geographic bias when reporting on volume, stating that those in the USA or Europe would be more predisposed to accusing Asian volume of being fake, and vice versa. Expanding on this, Bankmanfried says that in fact, most fake crypto volume likely does originate in Asia, but conversely so does most of the real volume.
All Real, or All Fake?
It might not be wise to accept Bitwise’s view that the majority of the reported volume is fake, as both anecdotal evidence and other firm’s digital asset reports seem to show otherwise. Instead, like Alameda Research, it might be better to adopt a balanced approach to crypto trading volume.
Likewise, when assessing the total volume of the digital asset markets, and specifically Bitcoin, it’s best to leave geographical bias behind, as much real crypto volume comes from Asian countries despite the popular narrative that much of this volume is in fact fake.
