On the two big exchanges in the US, the NASDAQ and the New York Stock Exchange, there’s a monopoly on the data. They charge institutional investors a lot of money for it.
If you’re a crypto exchange however, your data is your marketing and distribution channel. It’s a great way to advertise what your product is; your trading pairs which you make money from every time a trade goes across them.
Ticker stuffing – pump up the volume
It’s simple for an exchange to just put up a ticker feed. But ticker feeds can be 24 hour candle which end only when the exchange decides they should end, so there’s no pre-defined start/stop points.
The Cryptocurrency Aggregators
Coin Market Cap is a well used aggregator. All they need is a ticker feed to include an exchange’s data. It’s a very easy programming task for the aggregators to include a new exchange, as there are only five or six data points to encompass.
It’s an open/close high/low volume record, but exchanges can amend the opening and closing volumes easily enough, so the data that the dodgier crypto exchanges send out to the world in no way reflects what the actual volume on the exchange for that pair.
Research from https://nomics.com suggests that many exchanges are fudging data. It’s almost like a marketing arms race whereby as an exchange you have to get in advance of all the other exchanges who are ALSO faking data.
Should you be worried about false volumes on Cryptocurrency Exchanges?
Worried might not be the word, but it’s worth doing your research. If you see a trading pair on Coin Market Cap, and you look at it’s top exchange, Coin Market Cap is giving that exchange a certain amount of social proof. It’s like when you look up a product review on Google. You expect Google to give you the best, most appropriate review, but often it’s the businesses who know how to play the system best who get to the top of the Google SERPs.
Similarly, the nefarious practises outlined above might cause you to question whether the volume on that exchange is really there. And if the exchange doesn’t have the liquidity it’s promising it does, then will you be able to fill your trade?
Big related news at the moment is Bitwise having recently prepared a 104-page white paper on false claims of Bitcoin volume. In it, the fund manager argued that the bitcoin market still has inconsistencies regarding trading data, but the legitimate part of the market has a “remarkable efficiency.”