Current reports that China-primarily based exchange OkCoin may be fabricating information highlight the incentives for exchanges willing to inflate their reported trading volume.
The reason why an exchange might want to do this is really simple: the bigger the volume an exchange appears to have, the a lot more probably it is that liquidity-in search of traders will be attracted to that distinct exchange.
Furthermore, what tends to make inflating volume data even a lot more tempting is that, as opposed to bitcoin price information, there is no independent approach available to easily verify an exchange’s reported volume information.
The prices which bitcoin exchanges report can be verified by comparing actual trades at the quoted ask/bid price tag with the rates that exchange are reporting via their API data stream (which most significant exchanges now have). There must not be a important discrepancy in between two.
In contrast, offered the anonymous nature of bitcoin transactions, and the lack of other market features such as a central clearinghouse, we are wholly reliant on every single individual exchange for trading volume figures.
Is bitcoin trading volume information a fantasy?
While bitcoin exchanges have the motive and the implies to readjust their volume figures, there are some great reasons why we shouldn’t dismiss their data totally.
As the bitcoin exchange market place matures, one particular can think about a day when independent auditors will confirm reported volume information, in the way that professional accounting firms certify the public financial statements for corporations.
In the meantime, the closest approximation we have to independent audits are the venture capital firms, which are investing in numerous bitcoin exchanges.
For example, Lightspeed Venture Partners lately made a $ 5m investment in BTC China. As a effectively respected venture firm, we can reasonably expect that Lightspeed audited BTC China’s volume data as element of their due diligence procedure, particularly offered how essential this data is to the value of the investment.
Additional, even though there is some dispute over the current OkCoin reports, the story does illustrates how some traders are watching the exchanges for achievable discrepancies.
In the OkCoin example, it is also intriguing to contrast bitcoin consumer activism with the lethargy of classic bank buyers, who take extremely small interest in the reporting and operations of their banks due to the fact deposits are insured.
In the wake of the 2008 financial crisis, some scholars, such as Paul Seabright, have questioned regardless of whether the monetary technique would have been much more secure had it been far more like bitcoin’s.
If bank consumers played a far more active function in monitoring economic institutions, would they have far more ‘skin in the game’?
The topsy-turvy world of bitcoin exchanges
With these caveats and disclaimers on volume out of the way, what can be said about trading volume for bitcoin this year, as we method the finish of 2013?
Figure 1: 2013 BTC Volume (Units) – Cumulative Volume for BTC China, Mt. Gox and Bitstamp
1 of the most striking components of Figure 1 – which depicts the cumulative 2013 bitcoin trading volume – is that even with the dramatic upswing in November’s rates, we have still not but observed the exact same level of volume as mid-April.
The cumulative volume of 636,571 BTC on 16th April – the largest volume day of 2013 – is almost double the peak November-December volume of 340,727 BTC on 18th December.
Figure 2: 2013 BTC Volume (Units) – BTC China, Mt. Gox and Bitstamp
It is also worth noting the shift in the dispersion of volume between the April and November-December periods. As can be observed in Figure two, Mt. Gox dominated bitcoin-trading volume via the 1st half of 2013, and beyond.
For example, on the 16th April, the number of bitcoins traded on Mt. Gox alone equaled 572,186 BTC (90% of the total of the three exchanges).
In contrast, on 18th December there was a roughly equal dispersion across BTC China, Mt. Gox and Bitstamp, with a volume of 93,934, 109,723, and 137,070 BTC respectively.
Figure 3: 1st August – 23rd December BTC Volume (units) – BTC China, Mt. Gox and Bitstamp
More recently, we can see in Figure three how BTC China has caught up to and overtaken Mt. Gox and Bitstamp in every day trading volume, once again as measured by the number of bitcoins exchanged.
From 20th October by means of to 23rd December, the average every day trading volume on BTC China has been 55,216 BTC, while Mt. Gox and Bitstamp have averaged exchanging 34,192 and 32,235 BTC per day, respectively.
However, if we appear at most recent days we currently see a dramatic reversal of fortune, with BTC China now falling behind both Mt. Gox and Bitstamp. In the last four trading days, BTC China’s average everyday volume has been 15,293 BTC, whereas Mt. Gox and Bitstamp have averaged 17,434 and 21,574 BTC.
Why hasn’t bitcoin volume matched its April highs? Which exchanges are poised to pull ahead in 2014? Share your thoughts on these and other exchange volume concerns in the comments beneath.
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View 2013 Bitcoin Trading Volume: The Winners and Losers on CoinDesk.
2013 Bitcoin Trading Volume: The Winners and Losers
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