We Still Don’t Know Bitcoin’s Real Volume

Galen Moore is a Senior Research Analyst at CoinDesk. The following article originally appeared in Institutional Crypto by CoinDesk, a weekly newsletter focused on institutional investment in crypto assets. Sign up for free here.

Fake volume became one of crypto assets’ leading narratives of 2019, as a U.S. regulatory application for an exchange-traded product (ETP) followed the work of earlier researchers in showing how as much as 95 percent of lit markets’ reported bitcoin trading volume might be fake. That’s resulted in conservative estimates of bitcoin volume that are probably far too low, and a condition of uncertainty as to how much bitcoin is actually being traded.

You could think of fake volume as a natural feature of crypto’s novel market structure, in which: 

  • liquidity is divided among many competing exchange venues
  • trading fees are high relative to other asset categories
  • exchanges provide data for free

In crypto markets, data is a marketing tool instead of a revenue source, and some exchanges have been shown to use it that way, exaggerating volumes in order to enhance their perceived liquidity. 

These realities and the data presented by researchers like BitWise in its March 2019 ETP application have led market data aggregators to adjust their volume representations. The chart below compares adjusted daily bitcoin volume figures for the month of November offered by two such aggregators, Messari and Nomics, against the unadjusted reported daily volume figures offered by CoinMarketCap, historically the best-known market data provider. 

Chart showing bitcoin volume vs time

The discrepancy between the two examples of adjusted bitcoin volume shown stems from the list of exchanges each data aggregator includes. Messari limits its “real” bitcoin volume number to the 10 exchanges identified in BitWise’s ETP application. Nomics rates 32 exchanges high enough on its “transparency rating” metric to include them in its “transparent volume” aggregate. 

In its…

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