In mid-January, a blogger writing under the moniker ‘Crypto Anonymous’ published an article in which they claimed that the price of Bitcoin was supported by unbacked Tether issuance. This analysis relied in part on data from a provider called CoinLib purportedly showing the flow of money within the crypto ecosystem. As I will demonstrate, this data is not sufficient to make the case that Bitcoin liquidity is dominated by Tether, and relying on it is liable to mislead. Unfortunately, the mainstream financial press is now amplifying these erroneous claims. (Note: this article is not a debunking of the ‘Bit Short’ article, which has already been done capably here, here, and here.)
Fake volume is a well-documented problem
When I read the ‘Bit Short’ article, I immediately knew that the author Crypto Anonymous was not, and had never been, a serious crypto market participant. If they were a real trader with meaningful capital at risk in crypto markets, they would have known that many of the exchanges composing the CoinLib sample are not credible, and that the resultant data was thus completely unreliable. My credentials on this topic? I am the cofounder of Coin Metrics, a data business that licenses crypto market data to financial institutions, asset managers, and banks. The CM team is well aware of this exchange data quality problem, and has developed a 36-point whitelisting framework which applies quantitative and qualitative tests to exchanges to determine whether they are providing honest data.
Naturally, many exchanges fail these tests. Quite frankly, there aren’t many exchanges or trading venues in the industry that meet the standards that public markets investors expect from a data quality perspective, although this is changing. Coin Metrics isn’t the only entity to point out that exchanges suffer from data quality issues, and that a robust whitelisting framework is required to obtain reliable volume assessments. Asset manager Bitwise famously determined in a report to the SEC that 95 percent of claimed crypto volume was fake, drawing a sharp distinction between credible, onshore exchanges (with fiat connectivity) and offshore exchanges (which often use Tether). Bitwise maintains an index of credible volume figures based on a whitelist framework. Alameda Research, one of the largest market makers in the industry, supported the Bitwise research with a report of their own on junk data, and administers their own fake exchange volume monitor.
Data provider Messari also takes the whitelist approach to derive “real volume” figures, pointing out in their methodology that “[it] is widely known that many exchanges conduct wash trading practices in order to inflate trading volume.”
Similarly, industry trade publication The Block manages an exchange whitelist of their own, which is more expansive than the one devised by Bitwise. Coin rankings site CryptoCompare equivalently publishes an exchange benchmark seeking to contextualize claimed volumes. In short, this problem is well-understood by anyone paying the slightest amount of attention to the industry. It beggars belief that a longtime crypto trader would not be aware of this fact.
And this information isn’t new. Industry leader CoinMarketCap’s struggle to derive reliable volume figures has been well documented in the mainstream press. I discussed the perverse incentives at play which cause rankings sites to uncritically accept faulty exchange volume back in 2018. In short: start-up exchanges fake data so they look liquid and active, both to encourage tokens to pay listing fees, and in an effort to get traders on the platform. Rankings sites often have financial relationships with the exchanges they cover and have little incentive to denoise the data.
The problem is endemic to crypto markets. Anyone paying the slightest amount of attention to the industry would have known that the Tether-based exchanges were prone to overstating volume. This naturally skews assessments of market liquidity and consequently has the effect of overstating Tether’s influence on the market. Remember, it’s the offshore, generally non-fiat connected exchanges that tend to fabricate volume, so uncritical aggregates will end up overstating Tether’s role in Bitcoin price formation.
Now why is this a problem? Because CoinLib is taking the data outputs from marginal exchanges as face value, and unsophisticated analysts like CryptoAnon are using it to disseminate a narrative about Bitcoin’s liquidity.
If you consider the seven most liquid exchanges according to CoinLib, only Binance, Coinbase Pro, and Bitfinex would pass muster with most of the whitelisting frameworks listed above. In the Coin Metrics trusted volume framework, Lbank, ZB, and HitBTC — three of the largest exchanges in the CoinLib sample — do not pass the filter. They are not considered credible. Data provider Nomics, which filters exchanges for credibility, gives Lbank, ZB.com, and Bit-Z a C, and HitBTC and A-. Cryptocompare gives ZB.com, Lbank, and Bit-Z a C, and HitBTC a B. Messari and Bitwise only include data from Binance, Coinbase, and Bitfinex in the top 10 exchanges cited by CoinLib. The Block’s index of 24 legitimate exchanges only considers 4 of the top 10 presented by CoinLib to be credible. We’re talking about billions upon billions of fictitious USDT volume.
So if you actually dig into the CoinLib data, the crucial error becomes starkly clear. Each of Lbank, ZB, BitZ, and HitBTC are USDT-only exchanges. And each of them gets consistently poor grades from the data aggregators or is excluded from the whitelists. But CoinLib takes a naive view, uncritically accepting their claimed volume figures as fact.
A fact-checking failure by the WSJ
Now, anonymous posters on Medium are one thing. For all we know, Crypto Anon could have a massive short position and could be talking their book. We have absolutely no reason to trust them: caveat emptor. But when those claims get rebroadcasted and treated as factive by mainstream financial publications, we cross into the domain of journalistic malpractice.
Unfortunately, that’s what happened today. Andy Kessler, Wall Street Journal columnist, wrote a piece entitled ‘Behind the Bitcoin Bubble’ [archive link]. In the piece, he repeated the claims made by CryptoAnon, effectively endorsing them. In support of his argument that “Bitcoin is nothing, it’s vapor, a concept of an idea” Kessler wrote:
[A] poster named Crypto Anonymous (for what it’s worth, know your customer) did some digging and found that as much as two-thirds of bitcoin buys on any given day were purchased with tether […]
Now normally, if you are a columnist writing in one of the most respected financial publications, you might try and evaluate the data behind that claim, instead of just uncritically accepting it. But Mr. Kessler did no such thing. He just blindly repeated a fanciful claim from an anonymous blogger in order to imply that Bitcoin’s price was somehow dependent on Tether.
Kessler’s misunderstandings are numerous. First of all, the CoinLib data is simply not indicative of Bitcoin’s liquidity profile. Bitcoin has extremely deep direct fiat liquidity. The asset is not dependent on Tether to trade. Virtually none of the U.S. based exchanges — where the plurality of the world’s crypto trading occurs — employ Tether. These exchanges are directly connected to banks like Silvergate, Metropolitan, and Signature. Exchanges Gemini and Coinbase even boast on JP Morgan as a service provider. A number of highly-regulated entities like the CME, ErisX, and the Intercontinental Exchange (via Bakkt) host the trading of Bitcoin derivatives under the watchful eye of the CFTC. Other entities like Cash App, Paxos, Paypal, BlockFi, Robinhood, Bitwise and Grayscale all facilitate various forms of exposure to Bitcoin and are connected to the commercial bank system and in some cases publicly-traded companies. No Tether present. And lastly you have crypto firms like Avanti, Kraken Financial, and Anchorage which boast shiny new bank charters (whether through states like Wyoming or at the national level). Suffice to say, in the U.S., crypto markets are tightly integrated with the commercial bank system and have no dependency whatsoever on Tether.
Stablecoins, while an increasingly vibrant financial infrastructure, are not necessary to support the trading of Bitcoin in the U.S. Today, Bitcoin has robust, surveilled, and capacious USD liquidity. Tether could evaporate overnight and change absolutely nothing about the Bitcoin markets in the U.S.
The second mistake Kessler makes is in confusing volume with flow. Volume simply means trading in an asset. The CoinLib charts purport to demonstrate the “Money flow from/to Bitcoin” but they do nothing of the sort. Rather, they show an (extremely noisy) compression of where volumes are occuring.
But CoinLib, and by extension Crypto Anon and his unwitting acolyte Kessler, conflates exchange volume with actual inflows. Leaving aside the junk data element for a second, exchange volume is heterogeneous. A retail brokerage transaction bearing a 200-bp fee at Coinbase is much likelier to represent an inflow of capital than a leveraged BTC-USDT futures trade on FTX, Binance, or Huobi. Real inflows are hard to directly measure, but some proxies are available. Grayscale BTC acquisitions are indicative of actual inflows into the asset. ItBit data is considered by some to be a proxy for Paypal BTC purchases. Square publishes client BTC purchases in their quarterly reports. It’s a matter of fact that the publicly-traded company Microstrategy acquired 70.8k BTC. Coinbase will shortly publish an S1, giving investors an even better idea of the relationship between their volume and inflows. And we keep hearing about multi-hundred million dollar buys facilitated by NYDIG, Coinbase Prime, and my former colleagues at Fidelity Digital Assets. The point is, there is a provably large onshore BTC/USD market, and its scope can be ascertained through a patchwork of public sources, if you care to look. Additionally, exchange volumes must be contextualized, as exchanges vary dramatically in the sophistication of the client base and fee structures.
Tether is undeniably important within crypto markets. It’s the main (but not sole) currency that traders use to settle and hold a balance on exchanges, especially those without connectivity to the U.S. banking system. It denominates derivative contracts on many offshore crypto exchanges. But it is simply erroneous to treat Bitcoin liquidity as homogenous, and moreover to claim that liquidity constitutes inflows. Grayscale’s Bitcoin purchases (with real US dollars) constitute inflows. Offshore USDT-denominated crypto exchanges fabricating orderbooks and creating wash trades so they appear liquid couldn’t be more irrelevant to price formation. It’s just noise.
Mr. Kessler had the time to contact the NYAG and ask about the status of their investigation into iFinex Inc. But he didn’t bother vetting the extravagant claims made by anonymous bloggers relying on junk data. He could have spent five minutes and called any crypto trader or market participant and asked them if CoinLib was a reliable source, or if ZB.com was a credible exchange. But he didn’t, because he wanted to believe a contrived narrative and the data presented by the anonymous blogger fit that narrative. (If you want to know what is really driving this rally, read my recent explainer on the topic.)
Look, I get it. Crypto data can be confusing. But to comment on crypto issues, in particular extremely complex ones like the liquidity profile of Bitcoin and other globally-traded cryptoassets, you cannot rely on surface-level data analysis. If you take assumptions from traditional markets and transpose them, you will go wrong.
Now if the WSJ is willing to uphold their editorial standards, they will retract the erroneous claim and issue a correction. A shadow edit, the all-too-popular method that the press uses to slyly cover up its blunders, won’t suffice (I’ll be watching). The Tether story may well have legs, but skeptics do themselves a disservice by enlisting the help of unsophisticated, anonymous bloggers and by relying on easily-debunked data. Tether is a story worth covering. The case of the world’s largest stablecoin is, indeed, an interesting story. But wild theories relying on data that everyone in the crypto industry knows to be erroneous do no one any good.
Polkadot, Cosmos, Zcash Price Analysis: 14 April
On the back of a significant uptrend, Bitcoin, the world’s largest cryptocurrency, climbed from under $60,000 to over $64,500 in less than 48 hours. At press time, however, the crypto’s bullish momentum seemed to be exhausting itself, with corrections setting in and pulling the value of the larger crypto-market south. The same was evident when the price charts of alts such as Polkadot, Cosmos, and Zcash were taken into account.
It’s been just under two weeks since Polkadot, the market’s 7th-largest crypto, was trading at its ATH. While corrections soon followed, thanks to BTC’s latest foray above $60k, market bulls once again spurred the movement of DOT’s price action. In fact, over the last few trading sessions, DOT hiked by almost 10%.
At press time, however, corrections affecting the Bitcoin market were taking the toll on DOT too, with the alt losing value by the hour.
Whether these corrections will amount to a definite trend reversal, however, is a question that cannot be answered at this moment. While the Parabolic SAR’s dotted markers were well under the price candles and suggested bullishness, the Chaikin Money Flow was healthy, despite noting a dip to correspond with the alt’s price fortunes.
The project was in the news recently after Tether announced that it will be launching on Polkadot and Kusama.
Cosmos, the crypto ranked 31st on CoinMarketCap’s rankings, has had a good last few weeks, with the alt consistently registering higher lows on the back of a sustained uptrend. While ATOM hasn’t been a stranger to brief periods of depreciation, the last few days did see the alt surge by over 17.5% on the charts.
Like DOT, the last few hours did see ATOM correct, however, with the crypto trading over 8% away from its ATH.
While the mouth of the Bollinger Bands was widening at press time to point to some degree of incoming price volatility, the Awesome Oscillator pictured positive market momentum on the histogram, despite some bearish signals.
The development team behind the project activated the Inter-Blockchain Communication (IBC) protocol following a vote by members of the Cosmos ecosystem recently.
One of the crypto-market’s leading privacy coins, Zcash has been on a steady uptrend for the past week, with the same punctuated by a set of brief price falls. One of these periods of depreciation was underway at press time after BTC failed to assert itself above the $64,500-mark. That being said, ZEC was still up by almost 10% in just over 48 hours on the charts.
Zcash’s indicators were very ambivalent, however. The MACD line was diverging away from the Signal line following the brief possibility of a bullish crossover. Finally, the Relative Strength Index exhibited buyer’s strength, with the same very close to the overbought zone.
Zcash was in the news recently after the ECC announced Halo Arc for the “next generation of Zcash.”
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Centurion Invest Launches Copy Trading System For CIEx Traders
Centurion Invest Exchange (CIEx) has launched its copy trading system for its traders. Notably, both novice and intermediate traders can use the new system to boost their earnings, especially in a volatile crypto market. Interested traders can manually copy trades from experienced traders and mutually benefit.
According to H.E. Ali Kassab, Chairman of Centurion Invest, the platform has 25 experienced traders to help cryptocurrency traders make informed and proper decisions.
“Cryptocurrencies are different from other asset types since the prices are volatile, making it much harder for junior traders and investors to establish proper investing strategies. Our copy trading service with over 25 expert traders onboard provides an immediate and convenient trading solution. CIEx novice traders can start trading with an immediate $100 bonus and instantly turn it into profit. As well as accessing the best copy trading feature on CIEx, including trade signals and guaranteed closing with profit, they can also opt for monthly secured income traded funds throughout our investment plans tailor-made for all users,” noted Kassab.
The company has set out a mechanism to incentivize traders who successfully participate in the copy trading system. Kassab further noted that the decentralized nature of the Centurion Invest copy trading platform enables traders to earn by both actively trading and through passive income. Vouching for the platform’s sustainability, Kassab noted that the developers made sure the new platform offers enhanced privacy and more robust security. “Depositing funds and accessing spot and futures trading are made effortless so that novice traders can gain confidence rapidly,” he explained.
By leveraging the power of blockchain technology and human expertise, Centurion Invest Exchange aims to help traders make more profit, especially from the ongoing rally.
In a bid to attract more customers to its platform, Centurion Invest has put in place different mechanisms. One, the company launched a referral program where anyone stands a chance to win bonuses from referring friends. Currently, the platform is running a limited offer to new customers who register an account with the exchange, whereby one stands a chance to win 100 USDT.
Notably, the company strategically launched its cryptocurrency wallet dubbed CI Wallet last month. The wallet provides key features such as Spot Trading, Futures, and Margins. For anyone interested in subscribing to the Centurion Invest Exchange services, the platform supports Visa, MasterCard, bank transfer, and also through top digital assets.
With Berlin looming, how is Ethereum’s price faring?
The 14th of April 2021 is a historic day for the crypto-community, with the Berlin ETH hard fork expected to go live, alongside a Coinbase IPO valued at over $100 billion. Ergo, it does not come as a surprise that altcoins in the top-25 are rallying, alongside Bitcoin’s run to its latest ATH on the charts.
A top metric that underlines how the current altcoin rally is in response to these two events is increased on-chain activity. For Ethereum, the top metric is the number of non-zero addresses, with the same climbing to touch a new ATH of 57 million recently, based on data from Glassnode.
Based on the attached chart, the number of non-zero addresses on the Ethereum network has increased consistently with the price and the trade volume. In addition to the number of non-zero addresses, there has been an increase in major activity and metrics on ETH’s network, just as it has been so on Bitcoin’s network.
As can be observed from the attached chart, despite a 63% correlation between ETH and BTC, on-chain activity has risen exponentially for both assets. The bullish sentiment among traders on top spot exchanges is visible in the Options market as well. ETH Option skews have been decidedly bullish with very little variability in Skew.
What’s more, the implied volatility is climbing steadily for ETH too. What these metrics highlight are a) The strong demand for Ethereum Options and, b) Large ETH call premiums were blocked in anticipation of the price rally post the hard fork.
And, it’s not just Ethereum. Besides ETH, top altcoins like ADA, XLM, LTC, and EOS are rallying in response to these updates and Ethereum’s price rally.
EOS’s trade volume, for instance, was up by nearly 50% in a 24-hour window, while the price was up by over 16%. One of the top EOS price drivers has been the fact that one of EOS’s top markets is Coinbase Pro.
Similar on-chain metric updates were noted for Cardano. On the back of two price rallies over the past month, Cardano’s price, at press time, was at a level where 100% of its HODLers are profitable. Similarly, in the case of XLM, the trade volume has been anticipated to increase since Bitcoin’s price rally gained steam. In fact, the trade volume was up by over 40%, with the price rallying with Ethereum. It is likely that the price rally driven by today’s events and Bitcoin’s run to its next ATH may leave the rally less than sustainable, however.
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