Coin Metrics to Identify Legitimate Trading Volume

Thirteen currently existing digital asset exchanges might be considered as trusted and not faking or exaggerating their trading volume numbers.

According to cryptocurrency analysis company Coin Metrics, fake trading volumes is a dark and persistent problem across digital asset trading platforms. Exchanges artificially inflate their trading volume numbers to get a higher ranking and attract more users.

Meanwhile, Coin Metrics, the financial crypto data provider, reports the list of trustworthy virtual currency exchanges that passed all the 3 tests of their newly released Trusted Volume Framework tool that helps to identify the legitimate trading volume.

Trusted Volume Framework tool

As stated in the Coin Metrics report, due to the lack of regulatory oversight, cryptocurrency exchanges tend to manipulate their trading volume data, which might be difficult to determine where reported numbers are accurate or false.

To help solve the problem, the company however created a framework that monitors digital crypto exchange trading data and detects exaggerated metrics. Reportedly, the Trusted Volume Framework consists of three tests, including volume correlation, web traffic analytics, and qualitative features.

The first measure checks up an hourly volume and price flow against a “trusted control group” of regulated and long-standing digital asset exchanges based in the United States: Bitstamp, Bittrex, Coinbase, Gemini, itBit, and Kraken. As stated in the report, the top-6 exchanges also support fiat-USD trading, which adds additional credibility.

The framework then compares the data of a particular asset’s hourly trading volume on the exchange with the same particular asset’s trading volume on the trusted exchanges.

The second metric compares the 24-hour trading volume on the particular exchange with its actual daily web traffic, assuming that more users should lead to more volume. “An exchange inflating volume numbers should tend to have a higher ratio of volume to traders relative to the other exchanges.”, claims the report.

To support the test Coin Metrics claims to use data from Alexa and SimilarWeb databases that map internet traffic.

The third and final measure of qualitative factors comes in addition to the quantitative ones. According to Coin Metrics, the Trusted Volume Framework examines a particular platform’s features like historical data availability, trading policy, KYC requirements, listing standards or trading fees.

Each feature in the list has its points and the more of them match, the higher the exchange is ranked. Exchanges ranked below 50 points, fail to pass the test.

13 of currently operating cryptocurrency exchanges passed all three tests of volume correlation, web traffic, and quantitative metrics. According to Coin Metrics, this means they might be calculated to be the most accurate measure of daily spot volume. The ones that passed the test for “trusted” spot volume include:

  • Binance (and Binance US)
  • Bitbank
  • Bitfinex
  • bitFlyer
  • Bitstamp
  • Bittrex
  • CEX.IO
  • Coinbase
  • Gate.io
  • Gemini
  • itBit
  • Kraken
  • Poloniex

The analytics further added that no exchange in the company’s list failed all tests, as they were carefully and even manually selected from the initial list. As the Coin Metrics explained, the list will be reviewed periodically, meaning that exchanges might be added or removed over time taking into account the underlying data changes.

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