Cryptocurrency exchanges often pose a significant conundrum to the larger industry. On one hand, formally established exchanges are the best medium of acquiring digital assets with ease, on the other, several cases have emerged over their dubious use as a means to inflate volume thereby presenting an unclear picture.
A recent report by CryptoCompare sought to detail cryptocurrency exchanges’ credibility on more than just the volumes they tout, as several reports have questioned the reported figures. With the use of “wash trading,” and order book manipulation, reported volumes should not be taken at face value and the recent report by the data aggregator has curated a new set of metrics to judge these exchanges.
On an overarching analysis of Geography, Trade Surveillance, Regulatory Assessment and the quality of the company, data, and market, CryptoCompare imparted a host of exchanges with grades ranging from AA to F. Taking the top spot on the exchange rankings is Coinbase with only five other exchanges recording an AA rating.
Charting out a historical analysis of the graded exchanges in terms of volume with the recorded BTC price over the past year, the report stated that the exchanges with “lower quality,” in terms of the grade awarded, performed better by market share in 2018.
The report read,
“By applying our current exchange grading system to historical volumes, we can show that lower quality exchanges have gained market share in the last year.”
CryptoCompare deemed this an ill-effect of the prolonged bear market of 2018, infamously referred to as the “crypto-winter.” As a result of the declining prices, the “organic trading volume,” decreased leading to exchanges opting for “new strategies,” to compete with the existing exchange fold.
The report cited two key factors which presumably acted as catalysts for this trend. Firstly, because of the “dwindling customer base,” in reference to customers who viewed cryptocurrencies as investment avenues leaving the space in search of greener pasture. Secondly, due to “chronic over supply,” arising out of the number of altcoins birthed out of the 2017-ICO boom.
Additionally, “incentivized trading schemes,” like Trans-Fee Mining [TFM] offered exchanges the chance to boost “volumes,” “status,” and allow increased fees to “list their tokens.”
The CryptoCompare report concluded,
“The ‘Fake Volume’ narrative has become a growing trend and in recent months research has been conducted to better understand the digital asset exchange market.”
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