Are the transaction volumes reported by various digital currency exchanges really that reliable? This question must have crossed the minds of some crypto investors, especially those who observed that some little-known exchanges are reporting huge trading volumes that even surpassed well-established names in the business.
From Zero to $5B Transaction Volume in Four Months
One astounding trading volume figure is that of the Singapore-based crypto trading platform BitForex. It’s hard to imagine that four months ago, BitForex can be considered to be an “obscure” relatively unknown crypto exchange, according to a Bloomberg report. Today, however, the platform is seemingly at the top of its game and reporting a daily transaction volume exceeding $5 billion, which, for comparison, is almost on par with the daily trading volume of London’s 217-year-old stock exchange.
The question posed by the report is simple — how did BitForex manage to increase trading volume to that level in just four months? Bear in mind that the crypto market has not yet recovered from January’s massive correction. And under the effects of this prolonged bearish sentiment, market activity has slowed down even in established crypto exchanges.
Are the Numbers Reliable?
A growing number of crypto investors are now starting to suspect that there must be something going on in these fast-growing platforms for their transaction trading volume to buck the industry-wide contraction trend. As suggested by Bloomberg, these exchanges “are either offering incentives that encourage users to inflate volumes, or not doing enough to stop abuse on their platforms.” Among the 219 platforms tracked by CoinMarketCap, BitForex has the biggest 30-day reported volume even though traffic on its site is only a fraction compared to well-established exchanges.
Transaction Mining and Wash Trading
Meanwhile, BitForex Vice President Garrett Jin explained that trading on the platform surged because of its transaction mining system. For every $1 that clients pay in transaction fees, they are rewarded with $1.20 worth of tokens issued by the exchange. But Jin added that this incentive program is about to end soon.
Transaction mining, which is also known as trade mining, is a controversial practice as many believe that it will encourage wash trading, where traders can artificially inflate market activity by trading the same assets back and forth among themselves.
Fortunately, governments are now starting to address the issue of inflated trading volume. For instance, the US Justice Department already started investigations on illegal practices, which include wash trading.
These issues are inevitable in nascent industries, including the cryptocurrency sector. But things are bound to get better as the industry matures, according to EverMarkets Exchange CEO Jim Bai, who explained:
“Fake volumes are unfortunately all too common in today’s crypto-exchange ecosystem. The industry will mature of course. As it does, more legitimate exchanges will come along and provide enough real, beneficial structural incentives so that people won’t be misled into trading on questionable venues. It will be a healthier marketplace.”