Telling the truth? How crypto data aggregators fight fake exchange volumes

Today, cryptocurrency data aggregators are tasked with being the first point-of-contact for newbies entering the space and also providing up-to-date information to experienced users. While the COVID-19 pandemic has caused a global economic downturn, the crypto industry is booming. Previously skeptical investors have started to test the waters, and data providers are dying to make a lasting impression.

Market data aggregators, or data providers, are platforms that collect inputs from various exchanges to present users with data on trade volume, historical asset prices and market capitalization. These platforms usually offer their own APIs for data distribution to blockchain projects and financial media outlets, alongside their standard web interface and mobile application.

From exit-scams to pump-and-dump schemes, the cryptocurrency community is no stranger to fraudulent activity. However, what may seem like an obvious scam to veteran crypto investors might not appear as such to a newcomer. Smart investments require smart data, so data aggregators are doing everything they can to provide users with the best data possible.

Volumes of fake volumes

Though methodologies varied across different data sources, daily trade volume had been the primary metric used to rank exchanges for the last few years. For the time, it was reasonably intuitive: Exchanges with higher volumes have more active traders, and more active trade creates greater liquidity.

The problem became apparent when in March 2019, Bitwise Asset Management published an analysis detailing how 95% of volumes reported by Bitcoin exchanges on CoinMarketCap were purportedly fake. After developing an infrastructure to read data directly from the trading interface of 81 exchanges, Bitwise noted inconsistencies with the volumes reported by many exchange APIs.

According to the report, exchanges had been misreporting their volumes to CMC, giving the public a false impression of the Bitcoin market’s size. Exchanges were inflating their volumes to rank higher on the listings and entice users onto their platforms. The report also argued that Bitcoin’s (BTC) actual market was far more organized and regulated than previously estimated.

According to Gerald Chee, head of research at CoinMarketCap told Cointelegraph that exchanges appeared to take advantage of CMC. Since the Bitwise report’s publication, CMC has launched its Data Accountability & Transparency Alliance to foster an ethical and open environment among exchanges, and it has also released several new ranking algorithms that aim to provide accurate data regardless of exchanges misreporting volumes.

While the Bitwise report covered BTC/USD and BTC/USDT exchange pairs, it did not scrutinize other markets in the space. However, data analytics firms were already getting busy. An investigation conducted by data analytics firm The Tie in March 2019 claimed that 86.57% of reported cryptocurrency trading volume appeared suspicious and that 75% of…