WASH TRADING: Entire Tether supply was traded 5 times yesterday

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Crypto analyst Mati Greenspan has called out CoinMarketCap over its frankly unbelievable cryptocurrency trading figures in the past 24 hours.

Greenspan – founder of Quantum Economics – has called attention to the astonishing levels of wash trading going on with major cryptocurrencies.

Earlier today he tweeted: “I think this wash trading thing is getting a bit out of hand @CoinMarketCap.

“Reported 24-hour volume of Tether is nearly 5 times the total market cap.

If we believe these numbers, 30% of all BCH in circulation has traded today, 66% of all EOS, and 93% of all Litecoin.”

He included a screenshot showing that in 24 hours, $19.341 billion worth of USDT (Tether) was traded according to CMC’s figures.

That’s around 470% of the total supply of USDT in existence.

By contrast, just 13% of the total Bitcoin supply changed hands – and research shows that’s likely to a large exaggeration in any case.

Rival site Messari which Greenspan says he uses ‘religiously’ has its own ‘real volume 24 hour figure’. It suggests that in the past 24 hours, around $542 million USDT was actually traded.

If true that means the real USDT volume is just 2.8% of Coinmarketcap’s figures.

Listen to Micky’s interview with Mati Greenspan on the debut episode of our new podcast Blockchain Journeys. Also available on Castbox and Pippa

Coinmarketcap already has a solution

CMC is well aware of the issue of wash trading – which is where one entity trades with itself to artificially inflate volumes.

Research suggests that around three-quarters of cryptocurrency exchanges fake the vast majority of their volume.

Exchanges fake volumes to rise up the CMC rankings, which gets them attention and attracts real users and allows them to charge higher listing fees.

CMC intends to combat wash trading by ranking exchanges on a new metric called ‘liquidity’ rather than volume.

CMC rival Messari’s ‘real volume 24 hour’ metric

CoinMarketCap says volume works in traditional markets

Coinmarketcap’s head of research Gerald Chee told Micky in mid-November that in traditional markets which are highly regulated, volume is “a very accurate depiction of liquidity because the more people trade, the more you can assume markets to be liquid.”

“So we tried to replicate that in the crypto world,” he added.

Unfortunately, crypto is decentralised and exchanges operate in many different jurisdictions with different regulations (or no regulation at all) so volume hasn’t worked out too well.

Chee said it was actually very difficult to design a metric that worked across all the different market pairs, assets and exchanges, but they’d settled on liquidity.

Higher liquidity means there’s lots of counter parties to trade with and less slippage (where a larger order affects the price).

“We want to encourage exchanges to have more liquidity, it’s better for everyone,” he said.

“If we change your ranking in order to focus on more liquidity that creates more public good and that’s what we hope to achieve.”

Exchanges will begin to be ranked on the new liquidity metric once more than 50% of exchanges had been added to the new system.

You can already see changes in rankings from the exchanges already added.

The metric itself is quite complicated and looks at exchange’s order books to see the distance of the order from the mid-price, the size of the order and the relative liquidity of the asset in question. It polls them randomly and averages the result over 24 hours.

Greenspan isn’t convinced

Greenspan doesn’t hold out much hope for the new liquidity metric, however.

“The liquidity metric won’t work though,” he tweeted in response to our story.

“Bad actors will learn how to game their new algorithm and they’ll be right back where they started. If CMC is serious about cleaning up their metrics they need to come down hard on fakers. It’s the only way.”