Crypto Volume Metrics Are Coming Under Fire
CoinMarketCap, the de facto provider of crypto data, is under heavy scrutiny right now as more parties begin to question how they measure volumes. As a result, the industry is beginning to show a shift based on where better information can be found.
Messari Disrupting Data Providers
Messari, a cryptocurrency analytics firm, announced on March 26th that they would be releasing a new product called “Real 10 Volumes”. By limiting the calculations to exchanges that have been determined to be reporting legitimate trading volumes, accuracy should increase significantly. The exchanges included in these calculations are Coinbase Pro, Bittrex, Bitfinex, Binance, Bitstamp, Gemini, HitBit, Kraken, and Poloniex.
More exchanges will be added as the product develops, but the idea is to keep it limited to “clean” data. In theory, it is better to have an accurate report of one subsection of the market rather than an inaccurate estimation of the entire industry.
All of this is in reaction to recent reports by Bitwise Asset Management that state 95% of volume on unregulated exchanges is inadmissible. Whether fake or not an “economic” trade, the activity isn’t a solid representation of actual trading activity and cannot be used. As explained in the report:
“Under the hood the exchanges that report the highest volumes are unrecognizable. The vast majority of this reported volume is fake and/or non-economic wash trading.”
It seems like only a few exchanges of the 81 included in the studies are reporting accurate volume, which is why so few are going to be included in the initial volume numbers. As more data feeds that are determined to be reliable are on boarded to the calculations, Messari will expand them.
Other reports have surfaced that support these conclusions (one of them being from the Tie). Messari will provide the “Real 10 Volume” metric on their OnChainFX dashboard alongside market capitalization, price, and other reported volumes.
Industry Wide Implications
In response to all of this, CoinMarketCap has put out a press saying they would be working on how their volumes are calculated in order to provide a full picture to users. However, considering the reported $100 million in revenue reported in 2017, it doesn’t seem like they are either up to the task, or willing to invest the time and money into improving the platform. But there are simple examples where volume is so clearly wrong, such as the relatively unknown exchange CoinBene reporting half a billion in Bitcoin volumes.
Trading volumes are significant for many reasons. First, they can affect VWAP trades, or volume weighted average price trades, that spread out a trade over time based on the expected distribution of volume. Additionally, a lot of investing and trading is based on the volumes being shown from this data. If it is inaccurate, than investors are being misled about the performance of a cryptocurrency, or the industry as a whole.
Messari’s CEO, Ryan Selkis, is adamant that poor reporting like this is part of the reason institutional investors are not more involved in the market at this point. In his words: “This industry is still a joke to most investors and this is why.”