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Bitcoin The Almighty Buck

Are More Than Half of All Bitcoin Trades Fake? (forbes.com) 76

Posted by EditorDavid from the tricks-of-the-trading dept.
Bitcoin represents 40% of the $1 trillion outstanding crypto assets, according to Forbes' director of data and analytics. "An estimated 46 million adult Americans already own it according to New York Digital Investment Group..."

"But can you trust what your crypto exchange or e-brokerage reports about trading in the most important digital currency?" One of the most common criticisms of bitcoin is pervasive wash trading (a form of fake volume) and poor surveillance across exchanges. The U.S. Commodity Futures Trading Commission defines wash trading as "entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader's market position." The reason why some traders engage in wash trading is to inflate the trading volume of an asset to give the appearance of rising popularity. In some cases trading bots execute these wash trades in tokens, increasing volume, while at the same time insiders reinforce the activity with bullish remarks, driving up the price in what is effectively a pump and dump scheme. Wash trading also benefits exchanges because it allows them to appear to have more volume than they actually do, potentially encouraging more legitimate trading.

There is no universally accepted method of calculating bitcoin daily volume, even among the industry's most reputable research firms. For instance, as of this writing, CoinMarketCap puts the latest 24-hour trading of bitcoin at $32 billion, CoinGecko at $27 billion, Nomics at $57 billion and Messari at $5 billion....

As part of Forbes research into the crypto ecosystem using 2021 data, we ranked the 60 best exchanges in March. More recently we conducted a deeper-dive into the bitcoin trading markets.... Our study evaluated 157 crypto exchanges across the world. Here are our main findings:


- More than half of all reported trading volume is likely to be fake or non-economic. Forbes estimates the global daily bitcoin volume for the industry was $128 billion on June 14. That is 51% less than the $262 billion one would get by taking the sum of self-reported volume from multiple sources....

- The biggest problem areas regarding fake volume are firms that tout big volume but operate with little or no regulatory oversight that would make their figures more credible, notably Binance, MEXC Global and Bybit. Altogether, the lesser regulated exchanges in our study account for approximately $89 billion of the true volume (they claim $217 billion).
Forbes adds that their report "builds on top of the important work done by other digital asset researchers such as Bitwise, which estimated in a March 2019 white paper that 95% of CoinMarketCap's bitcoin trading volume was fake and/or non-economic."

Their article includes some other interesting findings, including an observation that Tether "continues to be a dominant player in the crypto trading economy, especially when it comes to trades against bitcoin. Its current market capitalization is $68 billion, despite questions about its reserves."

Thanks to Slashdot reader rrconan for sharing the article...
This discussion has been archived. No new comments can be posted.

Are More Than Half of All Bitcoin Trades Fake? More

Are More Than Half of All Bitcoin Trades Fake?

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  • Tether (Score:4)

    by phantomfive ( 622387 ) on Sunday August 28, 2022 @05:29PM (#62830799) Journal

    I'm kind of amazed Tether is still around and its executives haven't gone to jail. But, the opera singer hasn't sung yet.

  • Since BTC and other crypto are supposed to be able to be tracked bcausee every transaction is in the ledger, wouldn't it be possible to trace a transaction based on that ledger? I'm excluding those places which mingle coins to prevent tracking.

    • https://btcscan.org/ [btcscan.org]

      https://etherscan.io/ [etherscan.io]

    • Since BTC and other crypto are supposed to be able to be tracked bcausee every transaction is in the ledger, wouldn't it be possible to trace a transaction based on that ledger? I'm excluding those places which mingle coins to prevent tracking.

      Sure, but wallets are free to make and it's difficult to tell who owns a wallet unless they do something to connect it back to their real-world owner.

      I think the only constraint is:
      a) How confident you are in your bookkeeping / code to keep track of all the wallets you created.
      b) The transactions aren't free, so for every additional bit of obfuscation you add you pay a bit more.

    • Sure but not relevant (Score:5, Informative)

      by cfalcon ( 779563 ) on Sunday August 28, 2022 @06:14PM (#62830917)

      If you were buying a bitcoin from me, we would look up the price, negotiate our price, and settle on blockchain. This sale would be private in that no one knows what was exchanged, but the transaction- the transfer of one btc from me to you- would he visible on chain.

      That is not what sets the price.

      If I put my bitcoin into an exchange, and you went to that exchange, and I sold my bitcoin for market price, and you bought bitcoin for market price, that would modify the price at that exchange. However, no actual blockchain transaction would do so.

      There would be me moving a bitcoin to the exchange, and later, perhaps you might remove it. But nothing would link those as the same, nor would they be.

    • Exchange trades don't take place on any ledger.

    • The public (decentralized) ledgers track things when Bitcoin/Ethereum/etc are being used as currencies. And that actually only tracks that A gave B coins; it doesn't say what B gave or did for A in exchange. No pricing information can be extracted from the blockchains' ledgers.

      When used as a security (as they are in reality), the blockchain is largely uninvolved. These exchanges hold a pile of coins in a collection of wallets and then have their own (centralized) ledgers where they track their customers acc

      • It's "similar" to stock brokers. It's also "similar" to how fences, and money laundering works. The exchanges are notorious for concealing details from regulatory agencies, whether criminal, customs, or tax related. And the high speed clutter and anonymity to these agencies is exactly how the high speed traders are engaging in predatory "pump & dump" with cryptocurrency, deliberately trigging buying and selling sprees under their own control and existing only for their own profit.

        • Sheep need to be sheared. If you see a coin skyrocketing, you don't know the reason and you buy into it, then you deserve to loose your mony in the subsequent dump. Trend following is by far the most common strategy out there. Do what others are doing, and get slotted when others do. If people realize that one can only make money if he does the opposite from what others are doing, markets will suddenly become efficient and it will be very difficult to make any money there.

      • Re: (Score:3)

        by AuMatar ( 183847 )

        So the main way to use and trade Bitcoin is to actually give up what was supposed to be the main point of Bitcoin by not having the trades in the decentralized ledger and opening it up to manipulation and theft?

        Yeah, that's all you need to know about the cryptocurrency scam right there.

        • Trades were never supposed to be and never were in the decentralized ledger and getting rich by trading it was not supposed to be its main bitcoin usage. If it becomes widely used as money some day then you will have it in your wallet on your phone and you will be paying for groceries with it, which will be decentralized. But how you get it is another matter, if you choose to buy it on a centralized exchange that's up to you. There are alternatives but they have their shortcoming.
        • Transacting in BTC in any other fashion is too expensive to be useful. ACH transactions are in the 0.5% range. There's a reason the ACH systems is so popular in the US. Other countries have similar mechanisms. Crypto-currencies are a solution in search of a problem.
        • The only way to win is not to play.

      • Re: (Score:2, Interesting)

        by Anonymous Coward
        It's not at all similar to how brokers work. Look up "NBBO" sometime to learn why you are almost certainly getting the exact market price, if not a better price, courtesy of the SEC. The decentralization inherent in cryptocurrency means that no NBBO is remotely calculable nor agreed upon, and there's certainly no SEC involvement to keep the transaction above board.

        While there are stock trades that happen privately, just like cryptocurrency transactions can bypass exchanges, the difference is that private

  • Yes (Score:1, Interesting)

    by RandomDisposibleAcc ( 9476493 )
    Look at every single other market that is based on notions of scarcity, such as:

    - Diamonds
    - Collectable video games
    - etc etc

    The common theme is that there's a artificially scared resource that in most contexts has little intrinsic utility beyond it's theoretical ability to store value and transmute back to currency later. Artificial diamonds have long surpassed the barrier where non-specialists can pick them out, a copy of the games data is easily available for all of the collectables (and our willin
    • Also, they're often used to transfer &/or launder money from illegal &/corrupt activities, e.g. tax evasion, drug trafficking, human trafficking, arms trafficking, & buying "favours" from corrupt regimes &/or criminal organisations. Physical versions of this, which have relatively high value in small volumes, e.g. diamonds & art works, are often used in combination with "free economic zones" which can bypass the usual customs & inland revenue requirements. See: https://en.wikipedia.o [wikipedia.org]

    • Re:Yes (Score:4, Informative)

      by Joce640k ( 829181 ) on Monday August 29, 2022 @04:50AM (#62831897) Homepage

      Artificial diamonds have long surpassed the barrier where non-specialists can pick them out

      The price of diamonds has always been a scam. They were never scarce, it's just DeBeers buying up all the mines and manipulating the availability to inflate the price.

      https://www.google.com/search?... [google.com]

    • Re: (Score:2)

      by ebyrob ( 165903 )

      Video games are precious! How DARE you sir. How dare you.

      That said, I'm not sure the bottom is going to fall out of that one unless or until counterfeits become indistinguishable from the real thing. People can and do want originals. (Oh NOES! Don't sell me the Mona Lisa! I'll be stuck holding the bag when art and history become worthless!)

      • Re: (Score:2)

        by ebyrob ( 165903 )

        This would be a little bit like the "bottom" falling out of the real estate market. (which only happens in some parts of Central America, dern sink-holes)

      • Video-game collectibles are an odd one, mostly because so many copies were made or sold and the valuation relies on three things:

        - millions of copies made were consumed, wilfully discarded or otherwise written off.
        - the Kafkaesque concept that whatever is in the sealed box is a worth a lot, but you can never touch it or open the box - lest its value turn to dust.
        - people valuing the box far more than the easily copied, digitally indistinguishable and lossless ability to replicate the thing inside.

        Th

  • As part of Forbes research into the crypto ecosystem using 2021 data, we ranked the 60 best exchanges in March.

    Does that mean most or least theft and/or loss? I'm still a little confused about all this, especially with an article stating that more than 50% of all trades are fake. I mean... is this a good or bad thing? :-)

    • The whole crypto thing is thieves stealing from idiots. So who can say what about anything? It is all scam at best. I do not buy groceries from a guy behind an alley. I buy them from reputable stores. And because crypto is a dark and shady industry, I donâ(TM)t even go there to begin with.

      • Re: (Score:2)

        by ebyrob ( 165903 )

        Which is safer? A green piece of paper or a really big prime number backed up on 70,000 different computers? People gotta keep score somehow.

        Of course... Don't forget we got that qubit count ticking up almost every day. Can crypto-currency keep pace with the digital arms race?

    • Re: (Score:1)

      by Anonymous Coward

      The "best" exchanges are the ones that don't block trading when the market goes off a cliff.

  • This is such a clickbait headline (Score:4, Interesting)

    by thecombatwombat ( 571826 ) on Sunday August 28, 2022 @06:51PM (#62831009)

    Kind of a minor annoyance, a battle those of us who care probably should have given up ten years ago on the internet, but a professional, journalistic, you know, good version of this headline would be something like.

    "Forbes study says greater than 51% of Bitcoin trades likely fake"

    There's no reason to hide that info other than happily annoying your users for clicks.

    • Welcome to the Internet, I've got some free time next weekend if you'd like someone to show you around.

    • Meh, they could do worse: "Forbes made a Bitcoin study, and you'd never believe what they found!". Or maybe: "Is your Bitcoin real? Click here to find out!".

    • Kind of a minor annoyance, a battle those of us who care probably should have given up ten years ago on the internet, but a professional, journalistic, you know, good version of this headline would be something like.

      "Forbes study says greater than 51% of Bitcoin trades likely fake"

      There's no reason to hide that info other than happily annoying your users for clicks.

      That's no better. Wash trades aren't really fake, at least the way they're legally defined. In spirit, sure they're fake, but the law doesn't cover the intent of your trade, just how you do it.

      So every repurchase of the same asset sold within 30 days is not *fake*, you'd have to know everyone's intent to prove that and that's impossible. If you're selling and buying immediately at almost the same price, just to create volume or just to claim you "sold" it this year for tax purposes, that's *fake*, but se

  • Comment removed based on user account deletion

  • Answers here: (Score:4, Interesting)

    by hdyoung ( 5182939 ) on Sunday August 28, 2022 @07:35PM (#62831109)
    Can you trust crypto trading volumes? No. Are a bunch of them fake? Yes. Are stablecoins backed by real assets? Barely. Is anything in this ecosystem FDIC insured? Hell no. Do you have any recourse if a cryptoexchange bro, err I mean CEO, downloads your coins onto a portable drive and takes off for some country with no extradition treaty? Sure - you can grab your gun and try to get them back yourself. This is what happens when you let a bunch of libertarians and anarchists design a financial system.

  • Probably people or companies are also inflating BTC trade volume but...

    Isn't transferring BTC between wallets you own also included in this? That's perfectly legitimate and probably happens frequently. Though, it's not really valid in terms of wanting to know how many distinct entities are sending BTC to other, different entities...

    Unless there's a way to transfer between wallets that is distinct?

    • "Trade" in this context is a trade between (crypto)currencies. Transfer between private wallets may be such a trade or it may be something else such as a purchase of goods, a loan payback, a gift etc. But the question is not what is the total global trade volume. The question is what is the volume og a single pair on a single centralized exchange. This is what is being faked and transfers between wallets do not and should not enter this calculation.

      • The question is what is the volume og a single pair on a single centralized exchange.

        Thanks, wasn't getting that for some reason, it makes more sense now.

    • Re: (Score:2)

      by Kremmy ( 793693 )
      The thing about cryptocurrencies is that transferring money from one wallet to another costs money.
      When the market climbs and dips the cost to transfer money from one wallet to another also swings wildly.
      People who have money to dump into speculative assets don't even seem to notice it, but people who have to manage their funds do.
      It's not set up well to be a long term casual use currency, it's toll roads for trading and the only people who think that's a good idea are people with money to burn.

  • Great... so 50% of the energy used is for nothing.
    Yet another reason to move away from Proof of Work.

    • No. Trades on centralized exchanges are taken care of internally, they do not get written into blockchains and therefore they have nothing to do with the proof of work. They are not the ones that spend that electricity.
  • There is no inherant value to it

    • There is no inherant value to it

      If you're trying to make a currency then having no inherent value is a good thing. One of the reasons people historically used Gold instead of say Iron as a currency was that Gold was too soft for most industrial uses. It would be wasteful to have Iron you be using to make useful tools gathering dust in some bank vault.

      However, AFAICT, almost nobody actually uses bitcon as a currency. And if you're trying to make an asset or financial instrument then having no inherent value (and no means of producing an

      • Re: (Score:2)

        by Kremmy ( 793693 )
        Which is funny now because gold is one of the most useful metals around in spite of being so soft.
        It is malleable and corrosion resistant, it conducts signals extremely well and being corrosion resistant it helps prevent the tarnish that would degrade the connection.
        The processes that use it are highly efficient, often plating with very thin layers to get the benefits without driving up the cost.
        You can even purchase it relatively cheaply for food purposes and make your shit glitter with gold.
        Inherent va
      • In the event of an economic crisis commodities will have some value, BTC will go to zero. Over time there is a good chance BTC will also go to zero.

  • Way more is fake (Score:4, Insightful)

    by paradigm82 ( 959074 ) on Monday August 29, 2022 @12:24AM (#62831615)
    They seem to define real/fake with respect to if there's actual economic activity as opposed to e.g. moving money between ones own wallet etc. I would argue the fake rate is much higher. How many real bitcoin trades do you know anyone has done? I would guess 95 percent are either completely fake or represent trading of bitcoins for cash i.e. trading bitcoin itself not some underlying economic value. Of the remaining 5 percent, almost all is money laundering and illegal activities. Less than 0.01 percent is what anyone would call real: buying star bucks coffee with bitcoins etc which are things that don't really exist except in newspapers headlines and in the heads of crypto kids and incompetent C-level executives.
    • A real transaction is when I want to buy bitcoin so I place a buy order on an exchange, you want to sell it so you place a sell order, and they get matched and executed. A fake transaction is when there is no money changing hands. For instance I open two accounts, I mak sure I pay no real exchange fees (for example I register as a market maker) and I buy and sell bitcoins between these two accounts. No money changed hands but the volume went up. So far I made millions of real orders and about half a million

      • A real transaction is when I want to buy bitcoin so I place a buy order on an exchange, you want to sell it so you place a sell order, and they get matched and executed. A fake transaction is when there is no money changing hands. For instance I open two accounts, I mak sure I pay no real exchange fees (for example I register as a market maker) and I buy and sell bitcoins between these two accounts. No money changed hands but the volume went up. So far I made millions of real orders and about half a million of transactions between cryptocurrencies. None of them was fake.

        No, what this article is talking about is when you sell something and buy it again at nearly the same price. They're normal transactions. That's what they mean by non-economic, no exposure to risk, etc. You didn't do it to make or lose money, you did it just for the sake of doing a transaction, and intent is kind of hard to prove there.

        For tax purposes, if you buy something again within I think 30 days of selling it, that's a wash sale. It doesn't mean every wash sale is really a wash sale. Some people

    • They seem to define real/fake with respect to if there's actual economic activity as opposed to e.g. moving money between ones own wallet etc.

      No, well, maybe that too, but no that's not what they mean by wash trading. Non-economic trade can look like this
      You own 100 shares that you paid $1 each for. Today, they're worth $0.50 each. You sell 100 shares at 50 cents, and immediately purchase 100 shares of the same stock at 50 cents, that's a wash. You could call it a fake trade I guess, you didn't do it because of the share price. Now you claim on your taxes that you "lost" $50 this year, and your 100 shares are now $50. Why you'd do that is t

  • Blockchain useful, crypto coins are a scam (Score:4, Interesting)

    by misnohmer ( 1636461 ) on Monday August 29, 2022 @03:01AM (#62831793)
    People often confuse the two. Blockchain is a very cool, and useful tech. Unfortunately, a bunch of people realized they can use this technology to create and trade an unlimited amount of unregulated securities, then run every possible scam that had in the past been ran on actual securities trading, but is no longer possible due to regulation today. Wash trading pump-and-dump is just one such scheme which is illegal and much harder to do with regulates securities such as stocks. With crypto coins, anyone can make any amount of crypto coin they choose to "mint". Anyone can trade or pretend to trade. Crypto coins can claim backing by assets, but there is no regulation, so maybe the trillion dollar backing of a coin is an NFT which someone created and then sold to themselves for a trillion dollars. Imagine if anyone could just create trillions of stocks and sell them on stock exchanges by saying anything they want about the stock, without any regulation whatsoever, like crypto.

    The sad part is that majority of people who will lose real money on this (as in they put in real money they never get back) are just gullible "I want to get rich quick" population who really doesn't have the money to spare. It actually targets gambling addicts too, just go listen to people who frequent casinos talk about crypto coins.

    • Funny that the article referred to bitcoin as a popular "digital currency" when it doesn't serve in any way as a currency.

      On your other point, for several years, I held your viewpoint. Blockchain useful tech, crypto coins scam. However, 10 years later, I no longer think blockchain is particularly useful. I can't think of one application, out of the thousands of instances of blockchain projects, that is better than existing solutions using non-blockchain tech.

      I am now blockchain agnostic or blockchain bellig

    • While I agree that a blockchain can sometimes be a cool thing to have, it is essentially a linked list where the links ar signed, and not much more.
      The supposedly revolutionary thing about them is that they can be implemented in a distributed almost zero-trust way. But most blockchain hyped proposed implementations don't really require the distribution part? E.g. Walmart was all about using blockchain for their logistics and provenance stufff. But I bet they would just run it on their own servers, and then
  • However, choosing a reliable exchanger is much more important, because it determines how and when you can get the exchange of digital money. Now business crypto wallet have different characteristics and conditions. Pay attention not only to the favorable rate, but also to the safety of cooperation.

  • They're the ones making all these fake trades.

  • Not sure how you can maintain wash trading and not get killed on fees. You'll need a very very good deal with the exchange in order to keep this up.

  • You could also argue that crypto trades are grossly underreported as trades within exchanges aren't normally reported on the public blockchain.

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