The rise of bitcoin ultimately led to its public trading, but new research is starting to show that some bitcoin trading may be a hoax. Many are beginning to cast doubt on the legitimacy of bitcoin trading, but is there a reason to doubt in the first place?
The Wall Street Journal was first to expose the irregularities in bitcoin trading, echoing the concerns of many regulators who believe that cryptocurrency markets, even to this date, can be manipulated. Bitwise published an analysis early this week, showing that approximately 95% of bitcoin traded today, are faked by unsanctioned exchanges, bolstering the expose of the Wall Street Journal.
Today, Bitwise is listing its first ever “bitcoin exchange-traded fund.” Together with its listing application, it discussed and submitted its analysis with the Securities and Exchange Commission on how regulators can go beyond the trading hoax happening now. Matthew Hougan, global head of research at Bitwise, says “People looked at cryptocurrency and said this market is a mess; that’s because they were looking at data that was manipulated… When you cut away the echo chamber of these nonsense numbers, it should be an efficient, well-arbitraged market.”
The discovery of the bitcoin trading hoax cast a lot of doubt on whether bitcoin is a good investment. People are now deceived as to the accuracy of the market. In the analysis of Bitwise, it showed that 71 of the 81 exchanges in the market are being simultaneously sold and bought, to have the appearance of activity in the market. Therefore, the movement in the market is not real.
Bitcoin exchanges report an average volume of $6 billion, but only $273 million of it is apparently legitimate. Hougan states “The idea that there’s fake volume has been rumored for a long time; we were just the first people to look at which exchanges were delivering real volume systematically.”
No one is sure of the motivation behind these simulated activities, but it appears that perhaps there is an incentive in reporting a fake volume. For example, new entrants or bad actors can make their records look promising for their initial coin offerings. Having this record allows them to trade in a platform with the big fishes, although they aren’t exactly big fishes yet.
U.S regulators are becoming more stringent with newer entrants of bitcoin trading. The SEC emphasizes that the need to reject applications stems from the imminent risk in the market, because of manipulations. The manipulations particularly threaten the investors, because they aren’t informed of the fair assessment of bitcoin’s price. This is further aggravated by the fact that most cryptocurrency trading platforms don’t have the same safeguards as stock exchanges.