CoinMarketCap Puts Wash Traders On Notice With New Metric

Lucas Cacioli   Dec 12, 2019 03:00 2 Min Read

CoinMarketCap’s new “Liquidity” metric is coming down hard on exchanges that harbor wash traders.

Wash trading is a process whereby a trader buys and sells an asset for the express purpose of manipulating trading volume and feeding misleading information to the market. In some situations, wash trades are executed by a trader and a broker who are colluding with each other, and other times wash trades are executed by investors acting as both the buyer and the seller of the security.

In the cryptocurrency industry, trading volume lost its value as an effective metric to rank exchanges and, consequently, digital assets. As a result, CoinMarketCap is planning to switch over to a new metric that will provide “real trading activity,” according to the firm’s Head of Strategy Carylyne Chan.

Liquidity the Main Metric

In a recent interview with Blockchain.News, Carylyne Chan affirmed that there is going to be a drastic change in the current rankings on CoinMarketCap — liquidity will become the default metric instead of volume.

It was first announced at The Capital that CMC has released a new metric to rank crypto exchanges by using liquidity in addition to ranking by trading volume. The change in methodology focuses on combating inflated volume reporting by crypto exchanges.   Chan believed that the previous solutions such as picking a few “trusted” exchanges or unscientific correlations like web traffic were not comprehensive to address the root cause of the issue.

Chan stated that there are three components to the liquidity metric system, the distance of the orders from the mid-price, the size of the orders, and the relative liquidity across different market pairs. The liquidity metric has been designed to measure liquidity adaptively while polling market pairs at random intervals over 24 hours and the result is based on the average.” 

Rankings Reshuffle

A comparison of the top 5 exchanges by liquidity and the top 5 by daily volume shows major discrepancies between both metrics. At the time of writing, HitBTC is first in terms of liquidity followed by Bitfinex, Binance, Huobi Global, and Kraken. Meanwhile, MXC is on the top of the list based on trading volume succeeded by Coineal, BitForex, BitMart, and CoinBene.

Chan said, “It creates generally speaking a public good, because then people will be able to trade better, they will be able to get a more accurate understanding of what the real prices across the world are for the asset they’re trying to trade. The focus on liquidity will make the whole market more efficient in general.”

The new methodology is in place and the crypto-world waits to see what real insights about the cryptocurrency industry it provides, and how CoinMarketCap will continue to prevent bad actors from gaming the system.

Image via Shutterstock


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