Most of bitcoin trading shown on crypto exchanges is fake. A recent study presented by Bitwise Asset Management to the United States Securities and Exchange Commission (SEC) shook the cryptoverse to its core. It is also reported that the data regarding bitcoin’s trading volume on one of the most highly used and trusted source CoinMarketCap is wrong. Stated in the report:
Reported volume adds to roughly $6 billion/day*, but 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.
In the study by Bitwise, the volume of bitcoin trading shown on various exchanges amounts to around $6 billion whereas in reality, the amount is around $273 million. Top 71 of 81 exchanges are reportedly doing wash trading. Wash trading is a term used to define a phenomenon in which a person is buying and selling the asset themself on an exchange so that transaction activity can be shown on that particular exchange. One of the reasons for these suspicious exchanges to show fake activity is to attract more Initial Coin Offering (ICO) opportunities. By doing so, more traders are lured to the exchange, bringing up its volumes and reputation in the market. Now, this report opens up another topic of discussion for traders and bitcoin community that the futures market of bitcoin might just be more significant for the price spikes and falls than previously thought.
The report stated:
Together, the CME bitcoin futures volume ($85M) and the CBOE bitcoin futures volume ($6M) represent nearly as much ADV as the largest bitcoin spot market Binance ($110M).
Bitcoin futures trading is taking place on CME Group Inc. as of now while the Chicago board of exchange (CBOE) delisted its futures just recently. Futures are financial instruments relating to a commodity which involve buying and selling of an asset at a fixed price sometime later in the future. Bitcoin futures trading of around $91 million volume for both CME and CBOE is almost one-third of the overall bitcoin trading volume. It was previously thought that the futures market is too insignificant as compared to the overall trading volumes and their effect isn’t much severe on bitcoin’s price. From the study published by Bitwise, one can now safely infer than short selling the futures market does have a huge effect on bitcoin’s price and can stop it from spiking up too quickly.
Short selling the market means betting against the market trend. It is done by investors when they feel that the market is going to go down. Futures market of bitcoin gives investors access to short sell. If bitcoin spikes up severely, investors can short the market by selling their futures hence increasing the supply. As a result of this, the upward price spike slows down. The futures market holds significant volumes of trading, revealed by Bitwise, it has more control over the price. It is also acting as a hurdle for another bitcoin bull run.
Talking about the aspect of futures market stopping a bitcoin bull run, Javad Afshar, the founder of BlockchainBTM which is a crypto ATM operator in the United States, said;
This 2017 phenomena happened because there was no instrument for the speculators to short the market. Now that we have the future markets for bitcoin, speculators can short the market whenever it gets out of hand.
Because of it, one can infer that the days of bitcoin shooting up and crashing down severely are gone. The futures market has a significant role in the bitcoin world and it is due to shorting that is keeping bitcoin in a relatively stable position since the past few months. It is something that bitcoin’s bull-run wishers do not want at this moment.