14 ms·

Bitcoin ETF research finds that 95% of Bitcoin volume is fake

586 points by mlerner 8y ago

floatingatoll 8y ago
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/srnysearca201901-5164833-183434.pdf https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca2... 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
- hhorsley 8y ago
  Thanks for looking through it!
- MuffinFlavored 8y ago
  Is the SEC going to approve it?
  - ceejayoz 8y ago
    I'd imagine the SEC doesn't leak that info in advance on HN.
    - saalweachter 8y ago
      Upvote the GP comment 100 times to get the SEC to reveal the answer on HN now! /facebookspam
  - tim333 8y ago
    The SEC has not been enthusiastic about Bitcoin ETFs. On another recent application (VanEck): >Bitcoin ETF is “absolutely not” going to be approved by the SEC, says CSO of CoinShares > The whole cryptocurrency market has been eagerly waiting for the approval of a Bitcoin ETF by the U.S. Securities and Exchanges Commission [SEC]. The reason the exchange-traded product is of much importance to the community is that it is considered as the gateway to drive the institutional investors into the space. >So far, the commission has rejected all the proposed rule changes with the main reason stated as concerns over market manipulation... https://ambcrypto.com/bitcoin-etf-is-absolutely-not-going-to-be-approved-by-the-sec-says-cso-of-coinshares/ https://ambcrypto.com/bitcoin-etf-is-absolutely-not-going-to... There have been a bunch of applications, all turned down so far.
jimjimjim 8y ago
Oh no, the ponzi is running out of rubes.
- dang 8y ago
  We've banned this account for posting unsubstantive comments and ignoring our requests to stop. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future.
  - gjs278 8y ago
    for anyone that actually wants to take the time to email, all they do is tell you to keep making comments that others vouch for and maybe one day you’ll get unbanned. they won’t actually do it just based on you agreeing to follow the rules. kinda condescending and misleading.
    - moosey 8y ago
      I don't understand how that is "condescending and misleading". Sometimes even adults need a bit of hand-holding, and this decentralizes the activity of reintegration, if I'm reading your comment correctly.
    - sbarre 8y ago
      If you demonstrated your inability or unwillingness to follow the rules and got yourself banned in the first place, don't you think you owe the community some proof that you can do better? Blind trust is what forced us to ban you in the first place. Invest in us and we'll consider re-investing in you.
      - gjs278 8y ago
        I read the comment as email us with the reason you should be unbanned and we will consider it. instead you are told that the email was a waste of time. my point is why make the users email? just explain that you’ve been banned but the users can unban you. there’s no point in tricking the user into thinking emailing can get you unbanned. it would be like going to a parole board hearing and being told there’s no way we’re letting you go free, we’re not in charge of it. ok well then why did you invite me here?
orev 8y ago
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.
- tuesdayrain 8y ago
  >This kind of net trading is fairly common. Just because it didn’t go through the network doesn’t mean it didn’t happen. I would expect that to be the ONLY kind of trading, with the single exception being decentralized exchanges that need to use the network to facilitate trades.
- Traster 8y ago
  You're misunderstanding what they're saying. They're literally saying that entire exchanges are clearly faking their trading volume because the data can be observed to be fraudulent - volume doesn't has no time correlation with other exchanges and the distribution of trades by volume is clearly fake.
- UweSchmidt 8y ago
  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 8y ago
    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.
andrewla 8y ago
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)
Proven 8y ago
95% of the rest is transfers between exchanges
toomuchtodo 8y ago
https://threadreaderapp.com/thread/1109114656944209921.html https://threadreaderapp.com/thread/1109114656944209921.html
modeless 8y ago
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 8y ago
  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 8y ago
    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
  - arcticbull 8y ago
    The difference is here it’s totally legal and an intrinsic part of the decentralized, deregulated coin ecosystem. It is bitcoin.
- usgroup 8y ago
  I expect the bitcoin case will remain dubious to the SEC because Bitcoin has no fundamentals. I.e no relationship to anything tangible. Further, volume on unregulated exchanges does effect price on regulated ones ... so you don’t have to manipulate a regulated exchange to move price. Really what crypto needs is a trustless blockchain based exchange. Something like an Ethereum based limit order book. Then no other exchange is relevant.
  - 8y ago
sbarre 8y ago
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 8y ago
  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 8y ago
    Well said
- jahewson 8y ago
  These are the slides that accompany their SEC filing. So, no. They’re just presenting the facts of their business.
- deleted 8y ago
  [deleted]
gruez 8y ago
>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 8y ago
  "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 8y ago
    what would you say are the top exchanges right now?
    - flurdy 8y ago
      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.
benj111 8y ago
"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?
- WalterSear 8y ago
  As I understand it, it's primarily used for money laundering after the fact, rather than sales.
  - benj111 8y ago
    Money laundering would imply short term parking of assets before moving them on? Which would tend to inflate trading volume? I don't have any money to launder so I'm not an expert, but that's seems right?
    - WalterSear 8y ago
      It's doesn't have to be short term. Previous processes mostly were, by necessity.
      - benj111 8y ago
        I'm thinking that if it becomes long term, isn't it then a store of value? I might be arguing semantics but if you put dirty money in to a box, and 5 years later it spits out clean money. That's different to a box where you put dirty money, it immediately spits out clean money, but you leave it there for safe keeping. On the other hand, if you have regular movement of money through a system, it becomes easier to trace the start and end points. If moneys just sitting there, you cant follow it.
        WalterSear 8y ago
fady 8y ago
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!
mey 8y ago
I find the title a little misleading, "95% of Bitcoin exchange volume is fake." to differentiate from transactions performed inside the network.
- lvs 8y ago
  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.
ineedasername 8y ago
Over 200 slides. Clearly a different culture of use at the SEC for powerpoint than in Silicon Valley. Is this common?
- wheelerwj 8y ago
  yes, one is academic the other is for people who “are changing the world.”
seibelj 8y ago
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.
- buboard 8y ago
  it's even more tragic that they now sell API access to this "data"
- ErikAugust 8y ago
  It’s product is the values. So the product is shit.
  - rocqua 8y ago
    I think moral values rather than numerical values were intended as the interpretation of 'values'.
- hanniabu 8y ago
  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 8y ago
    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/
  - brentonator 8y ago
    If I have taken anything away from 2018, it's that people generally do not form their own conclusions. We need gatekeepers more than ever today because fraudulent data and information is so easily created. When 95% of volume was studied to be fake, even if they were 50% off in their estimate there is an absolute need for Coin Market Cap to be a gate keeper.
superkuh 8y ago
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 8y ago
  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 8y ago
    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.
- Hamuko 8y ago
  >This has nothing to do with Bitcoin blockchain or Bitcoin itself. It's all about the speculation markets. Really? Nothing to do with Bitcoin? Really?
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mistrial9 8y ago
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 8y ago
  Got a source on that? Keen to read up on it.
tim333 8y ago
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.
dnprock 8y ago
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 8y ago
  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?
  - aey 8y ago
    No, because these fake transactions occur of-chain, in a database managed by the exchange.
    - arcticbull 8y ago
      In part because there’s no capacity on chain. Off chain solutions are the thing y’all are into these days aren’t they?
      - aey 8y ago
        100%! There are on-chain scaling projects in the works though.
        arcticbull 8y ago
        Such as? There’s no plan to increase block size and LN is off-chain. I haven’t heard of any other credible plans.
        aey 8y ago
        I am working on one https://github.com/solana-labs/solana https://github.com/solana-labs/solana But also take a look at the most promising sharding project: https://github.com/nearprotocol/nearcore https://github.com/nearprotocol/nearcore Two complete different approaches.
IkmoIkmo 8y ago
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%.
deleted 8y ago
[deleted]
Obi_Juan_Kenobi 8y ago
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.
- tudorconstantin 8y ago
  What happens on exchanges doesn't have to be settled on the blockchain and higher exchange volume is not necessarily reflected in utxo volume. That being said, it looks like the whole 2018 had more utxo activity than 2017, and things seem to get even more intense lately: https://utxo-stats.com https://utxo-stats.com
- nosuchthing 8y ago
  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.
chx 8y ago
What I do not understand: what is fake? The graphs these exchanges report? What does it matter? I do not quite get it.
SlowRobotAhead 8y ago
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 8y ago
  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.
Macross8299 8y ago
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 8y ago
  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.
jonplackett 8y ago
Anyone feeling like explaining why this is important to a cryptodummy?
- ehrtt 8y ago
  It's not.
Zamicol 8y ago
This is well known/suspected in the cryptocurrency circles. The problem is correcting for bad volumes.
NoblePublius 8y ago
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!).
hombre_fatal 8y ago
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.
908087 8y ago
I doubt Bitfinex's volume is real, either. Tether is their fractional-reserve-backed-by-loans-to-ourselves shitcoin.
teslaberry 8y ago
total bullshit. more like 98.5 to 99.5. i'm not even kidding.
haolez 8y ago
Fake exchanges will probably use this report to improve their wash trading algorithms and make them look more legit.
jfoutz 8y ago
This is good for bitcoin! I have no justification. I missed the 20k bandwagon and wanted to participate in a “meaningful” way.
- jfoutz 8y ago
  It’s not funny? This is good for bitcoin seemed like a litany for a while there. I’d love some insight as to why a deluded group of investors thought this was awesome.
deleted 8y ago
[deleted]
anovikov 8y ago
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?
OrgNet 8y ago
probably the same is true for the stock market because of the HFT
fiatjaf 8y ago
The only volume that matters is the amount of BTC transferred everyday on-chain.

586 points by mlerner 8y ago

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

hhorsley 8y ago
Thanks for looking through it!
MuffinFlavored 8y ago
Is the SEC going to approve it?
- ceejayoz 8y ago
  I'd imagine the SEC doesn't leak that info in advance on HN.
  - saalweachter 8y ago
    Upvote the GP comment 100 times to get the SEC to reveal the answer on HN now! /facebookspam
- tim333 8y ago
  The SEC has not been enthusiastic about Bitcoin ETFs. On another recent application (VanEck): >Bitcoin ETF is “absolutely not” going to be approved by the SEC, says CSO of CoinShares > The whole cryptocurrency market has been eagerly waiting for the approval of a Bitcoin ETF by the U.S. Securities and Exchanges Commission [SEC]. The reason the exchange-traded product is of much importance to the community is that it is considered as the gateway to drive the institutional investors into the space. >So far, the commission has rejected all the proposed rule changes with the main reason stated as concerns over market manipulation... https://ambcrypto.com/bitcoin-etf-is-absolutely-not-going-to-be-approved-by-the-sec-says-cso-of-coinshares/ https://ambcrypto.com/bitcoin-etf-is-absolutely-not-going-to... There have been a bunch of applications, all turned down so far.

jimjimjim 8y ago

Oh no, the ponzi is running out of rubes.

dang 8y ago
We've banned this account for posting unsubstantive comments and ignoring our requests to stop. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future.
- gjs278 8y ago
  for anyone that actually wants to take the time to email, all they do is tell you to keep making comments that others vouch for and maybe one day you’ll get unbanned. they won’t actually do it just based on you agreeing to follow the rules. kinda condescending and misleading.
  - moosey 8y ago
    I don't understand how that is "condescending and misleading". Sometimes even adults need a bit of hand-holding, and this decentralizes the activity of reintegration, if I'm reading your comment correctly.
  - sbarre 8y ago
    If you demonstrated your inability or unwillingness to follow the rules and got yourself banned in the first place, don't you think you owe the community some proof that you can do better? Blind trust is what forced us to ban you in the first place. Invest in us and we'll consider re-investing in you.
    - gjs278 8y ago
      I read the comment as email us with the reason you should be unbanned and we will consider it. instead you are told that the email was a waste of time. my point is why make the users email? just explain that you’ve been banned but the users can unban you. there’s no point in tricking the user into thinking emailing can get you unbanned. it would be like going to a parole board hearing and being told there’s no way we’re letting you go free, we’re not in charge of it. ok well then why did you invite me here?

orev 8y ago

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.

tuesdayrain 8y ago
>This kind of net trading is fairly common. Just because it didn’t go through the network doesn’t mean it didn’t happen. I would expect that to be the ONLY kind of trading, with the single exception being decentralized exchanges that need to use the network to facilitate trades.
Traster 8y ago
You're misunderstanding what they're saying. They're literally saying that entire exchanges are clearly faking their trading volume because the data can be observed to be fraudulent - volume doesn't has no time correlation with other exchanges and the distribution of trades by volume is clearly fake.
UweSchmidt 8y ago
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 8y ago
  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.

andrewla 8y ago

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)

Proven 8y ago

95% of the rest is transfers between exchanges

toomuchtodo 8y ago

https://threadreaderapp.com/thread/1109114656944209921.html https://threadreaderapp.com/thread/1109114656944209921.html

modeless 8y ago

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 8y ago
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 8y ago
  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
- arcticbull 8y ago
  The difference is here it’s totally legal and an intrinsic part of the decentralized, deregulated coin ecosystem. It is bitcoin.
usgroup 8y ago
I expect the bitcoin case will remain dubious to the SEC because Bitcoin has no fundamentals. I.e no relationship to anything tangible. Further, volume on unregulated exchanges does effect price on regulated ones ... so you don’t have to manipulate a regulated exchange to move price. Really what crypto needs is a trustless blockchain based exchange. Something like an Ethereum based limit order book. Then no other exchange is relevant.
- 8y ago

sbarre 8y ago

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 8y ago
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 8y ago
  Well said
jahewson 8y ago
These are the slides that accompany their SEC filing. So, no. They’re just presenting the facts of their business.
deleted 8y ago
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gruez 8y ago

>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 8y ago
"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 8y ago
  what would you say are the top exchanges right now?
  - flurdy 8y ago
    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.

benj111 8y ago

"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?

WalterSear 8y ago
As I understand it, it's primarily used for money laundering after the fact, rather than sales.
- benj111 8y ago
  Money laundering would imply short term parking of assets before moving them on? Which would tend to inflate trading volume? I don't have any money to launder so I'm not an expert, but that's seems right?
  - WalterSear 8y ago
    It's doesn't have to be short term. Previous processes mostly were, by necessity.
    - benj111 8y ago
      I'm thinking that if it becomes long term, isn't it then a store of value? I might be arguing semantics but if you put dirty money in to a box, and 5 years later it spits out clean money. That's different to a box where you put dirty money, it immediately spits out clean money, but you leave it there for safe keeping. On the other hand, if you have regular movement of money through a system, it becomes easier to trace the start and end points. If moneys just sitting there, you cant follow it.
      - WalterSear 8y ago

fady 8y ago

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!

mey 8y ago

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

lvs 8y ago
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.

ineedasername 8y ago

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

wheelerwj 8y ago
yes, one is academic the other is for people who “are changing the world.”

seibelj 8y ago

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.

buboard 8y ago
it's even more tragic that they now sell API access to this "data"
ErikAugust 8y ago
It’s product is the values. So the product is shit.
- rocqua 8y ago
  I think moral values rather than numerical values were intended as the interpretation of 'values'.
hanniabu 8y ago
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 8y ago
  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/
- brentonator 8y ago
  If I have taken anything away from 2018, it's that people generally do not form their own conclusions. We need gatekeepers more than ever today because fraudulent data and information is so easily created. When 95% of volume was studied to be fake, even if they were 50% off in their estimate there is an absolute need for Coin Market Cap to be a gate keeper.

superkuh 8y ago

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 8y ago
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 8y ago
  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.
Hamuko 8y ago
>This has nothing to do with Bitcoin blockchain or Bitcoin itself. It's all about the speculation markets. Really? Nothing to do with Bitcoin? Really?

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mistrial9 8y ago

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 8y ago
Got a source on that? Keen to read up on it.

tim333 8y ago

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.

dnprock 8y ago

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 8y ago
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?
- aey 8y ago
  No, because these fake transactions occur of-chain, in a database managed by the exchange.
  - arcticbull 8y ago
    In part because there’s no capacity on chain. Off chain solutions are the thing y’all are into these days aren’t they?
    - aey 8y ago
      100%! There are on-chain scaling projects in the works though.
      - arcticbull 8y ago
        Such as? There’s no plan to increase block size and LN is off-chain. I haven’t heard of any other credible plans.
        aey 8y ago
        I am working on one https://github.com/solana-labs/solana https://github.com/solana-labs/solana But also take a look at the most promising sharding project: https://github.com/nearprotocol/nearcore https://github.com/nearprotocol/nearcore Two complete different approaches.

IkmoIkmo 8y ago

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%.

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Obi_Juan_Kenobi 8y ago

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.

tudorconstantin 8y ago
What happens on exchanges doesn't have to be settled on the blockchain and higher exchange volume is not necessarily reflected in utxo volume. That being said, it looks like the whole 2018 had more utxo activity than 2017, and things seem to get even more intense lately: https://utxo-stats.com https://utxo-stats.com
nosuchthing 8y ago
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.

chx 8y ago

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

SlowRobotAhead 8y ago

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 8y ago
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.

Macross8299 8y ago

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 8y ago
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.

jonplackett 8y ago

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

ehrtt 8y ago
It's not.

Zamicol 8y ago

This is well known/suspected in the cryptocurrency circles. The problem is correcting for bad volumes.

NoblePublius 8y ago

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!).

hombre_fatal 8y ago

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.

908087 8y ago

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

teslaberry 8y ago

total bullshit. more like 98.5 to 99.5. i'm not even kidding.

haolez 8y ago

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

jfoutz 8y ago

This is good for bitcoin! I have no justification. I missed the 20k bandwagon and wanted to participate in a “meaningful” way.

jfoutz 8y ago
It’s not funny? This is good for bitcoin seemed like a litany for a while there. I’d love some insight as to why a deluded group of investors thought this was awesome.

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anovikov 8y ago

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?

OrgNet 8y ago

probably the same is true for the stock market because of the HFT

fiatjaf 8y ago

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