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

Crypto data aggregator websites are stepping up their game to fight fake exchange volumes — but it’s not all smooth sailing.

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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 exchanges presented unusual volumes and questionable activity. Additionally, in the same year, Alameda Research published a report stating that exchanges were falsifying 70% of all cryptocurrency volume data on aggregator platforms.

When exchange-ranking sites rely on volumes, trading platforms are incentivized to inflate volumes. When new project listings have both trade volume prerequisites, it incentivizes teams to overreport their numbers to get on the list at all.

It’s crucial for a project to be listed on a top-tier market aggregator, as it helps with growing the userbase, and provides greater exposure and access to investors with more capital. Therefore, some projects succumb to the requirements of top data providers and fake volumes to secure listings.

New metrics, same mistakes?

Several data aggregators were under fire this year. Most data providers were using exchange volumes in their ranking calculations and swiftly shifted to more accurate models. CoinGecko implemented a Trust Score to combat fake volumes by including web traffic, bid/ask spreads and depth cost metrics into the equation.

Nomics added an Exchange Transparency Rating to its ranking system in April, later adding the Transparent Market Cap and Transparent Volume metrics in May, which composites the market capitalization and volume of all coins listed on exchanges given an A+ transparency rating on the platform.

By November, CoinMarketCap had announced its new Liquidity Metric, a system designed from the ground-up to scan exchange data for both the volume spread and order book depth. Bitwise’s report had detailed some of the practices used by exchanges to fake their reported volumes, and CMC’s solution appeared to take these factors into account.

In response to the evidence of fake volumes, Messari also implemented changes to its OnChainFX ranking algorithm. While its Real 10 Volume metric attempts to list exchanges in order of reliability and trustworthiness, the Liquid Market Cap uses volume-weighted prices along with Liquid Supply estimates to rank trading platforms by liquidity.

“Crypto data aggregators will have to evolve and track the various new data sources coming on board to the market,” said Bobby Ong, co-founder of CoinGecko, in a conversation with Cointelegraph. Since May 2019, the platform has consistently added variables to its Trust Score calculations, the latest one evaluating exchange security.

While these metrics were developed to ensure that exchanges couldn’t fake their volumes to improve their rankings, strict parents raise sneaky children. It wouldn’t be long before exchanges and blockchain projects alike would find new ways around these systems, too.

The road forward

Cryptocurrency market surveillance firm BTI Verified published a detailed report in September on data accuracy of aggregator platforms, suggesting that among the top 50 exchanges ranked by CMC, only 32% presented unreasonably bloated volumes. Previous reports had pinned this ratio at 75%, which reveals a marked improvement in overall data quality.

When asked about the future of crypto data aggregators, Ong said that it would be interesting due to the “explosion of data being generated” in both centralized and decentralized spaces across various blockchains.

Like CoinGecko, Nomics and Messari, CMC eventually diversified and built on its initial Liquidity metric. The Liquidity Score, introduced in May 2020, incorporates additional information into its ranking algorithm, like the exchange’s web traffic, to estimate its user base.

Though things seem to have improved, aggregator platforms still have a long way to go. In its report, BTI Verified explained how exchanges have multiple avenues to trick the systems used by data providers and game their ranking algorithms.

“Each aggregator has a target market that they cater to, and they prepare guidelines according to that. With regards to differences in reported volume across these aggregators, what we have come across is each one has different requirements,” said Sumit Gupta, CEO of CoinDCX — an India-based crypto exchange.

A quick search on the web can reveal how easily an exchange can buy web traffic, and it’s far more straightforward than implementing wash trades. Liquidity measurements can be tricked using ghost orders: trades that appear on order books but disappear when engaged.

Exchanges that score poorly on one platform appear in the top rankings of others, indicating that some exchanges have found ways to adjust the data required to boost their rankings. Unless better methodologies are implemented, exchanges will soon find increasingly advanced ways to climb the ranks without any actual activity on their platforms.

Projects are still heavily incentivized to find ways to cheat these systems, be it through fake volumes, liquidity or web traffic. Data platforms with strict requirements, such as the need to be listed on a certain number of exchanges, hinder the growth of projects by pushing them to potentially illiquid exchanges and possibly exposing the token to needless volatility.

However, listing on fewer, more recognized exchanges is not conducive to ranking higher, as honest exchanges will always report lower volumes than those that mark up their trade numbers. “We don’t actually have a solution for the fake volume issue, at least not one that we’re able to implement anytime soon,” Nate Tsang, co-founder of crypto data aggregator website CoinFi, told Cointelegraph.

He noted that the solution was to collect all trade data from each exchange and use algorithms to detect wash trading patterns. “Of course, it becomes a cat and mouse game where the sufficiently motivated will find new ways to trick the algo,” Tsang added.

Instead of creating metrics to reduce the amount of misreported information, data providers should strive to create better incentive models for projects and exchanges. Guidelines that are more rewarding to blockchain-based projects will help to accelerate the industry’s growth.

Using real-world statistics, such as developer engagement, the number of employees and social media following, along with the metrics already in use, can help present more robust and accurate data for users. Due to the nature of decentralized networks, price data manipulation in one market can have overarching consequences on the overall prices, volatility and market sentiment.

Modern solutions that can combat fake volumes include decentralized oracles, which gather data from multiple sources and incentivizes data providers with tokens for reporting the truth. Using decentralized oracles could be the way forward, but until the technology can provide reliable service to integrate with enough platforms, how big of an impact they will make is still uncertain.

The current incentives that allow exchanges, data providers and tokens to take advantage of listing algorithms will be unsustainable in the long run. Today’s listing requirements and ranking mechanisms are detrimental to the growth of small projects and open avenues for manipulation from more influential players.

This isn’t a problem that can be attributed to just one component of the system. Unless aggregators attempt to create more sophisticated ways of ensuring data integrity, the cryptocurrency industry will only ever be remembered for its false presentation of a technological marvel.

Source: https://cointelegraph.com/news/telling-the-truth-how-crypto-data-aggregators-fight-fake-exchange-volumes

Blockchain

$500K Bitcoin Donation Funneled to Groups Involved in US Capitol Riot: Analysis

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Blockchain intelligence firm Chainalysis has tracked simultaneous Bitcoin (BTC) donations to wallets associated with right-wing extremist groups in the U.S., which might have helped fund the recent riot at the U.S. Capitol. The news marks yet another pivot towards pseudonymous money transfer means by alt-right groups in the U.S.

Alt-Right Agitators Received $500K in Bitcoin Prior to US Capitol Riot

Publishing its findings on Thursday (Jan. 14, 2021), Chainalysis revealed that several notable alt-right personalities who were present at the Jan. 6 riot in the U.S. Capitol received substantial Bitcoin donations.

According to Chainalysis, a single donor funneled 18.15 BTC to addresses belonging to entities with right-leaning affiliations on Dec. 8, 2020. At the time, this figure was worth over $500,000.

In its report, Chainalysis also revealed that popular far-right political commentator Nick Fuentes received 13.5 BTC. There are a few photographic pieces of evidence placing Fuentes at the riot with a megaphone in hand though Fuentes has denied entering the building itself.

Apart from him, alt-right podcaster Ethan Ralph and VDARE — an anti-immigration organization — also received BTC sums from the donor. While Chainalysis did not reveal the identity of the person responsible for funneling the Bitcoin, the crypto forensics outfit did mention that there strong evidence that the donor is a French computer programmer.

An examination into the donor’s wallet shows that the person is likely an early Bitcoin adopter. Further investigation into the donor shows a history of donations to extremist causes with an alleged suicide note referencing known alt-right talking points.

Based on these findings, U.S. law enforcement officials are reportedly investigating possible links between the donations and the assault on the Capitol. Prosecutors also say that they are approaching the investigations from a counterterrorism and counterintelligence standpoint.

Financial Censorship Triggering Crypto Adoption

Alt-right groups receiving donations in Bitcoin is only the latest example of political and social groups with dissident ideologies embracing cryptocurrencies. Indeed, Bitcoin’s early history is somewhat intertwined with WikiLeaks especially after the establishment was cut off from mainstream funding sources.

Even countries facing economic sanctions are also adopting cryptocurrencies. Venezuela is a popular example, with the Maduro administration even creating its own oil-backed Petro “coin.”

Nations like Iran are actively supporting Bitcoin mining with tax breaks for BTC miners. As previously reported by CryptoPotato, the output from three power plants has been offered to miners in the country.

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Source: https://cryptopotato.com/500k-bitcoin-donation-funneled-to-groups-involved-in-us-capitol-riot-analysis/

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Blockchain

Bitcoin Faced First Major Correction In Current Bull Run: The Crypto Weekly Market Update

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This week was very intensive in the cryptocurrency market. It’s perhaps safe to say that it was among the most tumultuous ones we’ve had in the last few months.

Everything started calmly, and during the weekend, the price hit an all-time high value of $42,000. The excitement was short-lived, as immediately after that, bitcoin went in the opposite direction and started to decline. It wasn’t until Monday, however, when things took a turn for the worst.

Bitcoin’s price lost around $12,000 in what seems to be the first major correction in the ongoing bull run. The decline of around 27% came in a few brutal four-hour red candles and led to the liquidations of $2.87 billion worth of both long and short positions, indicating once again how over-leveraged the market is.

From there, the price took uphill and even reached $40,000 again on Thursday. Bears, however, weren’t done as what followed was another handful of red candles that brought the price to its current trading level of about $35,000.

With this said, the entire cryptocurrency market took a hit as the capitalization has dropped below $1 trillion. Meanwhile, Bitcoin’s dominance is also suffering, as it’s down to 67.7% during this week from its high of around 70.3%. This shows that despite the blood on the streets, altcoins have managed to take the upper hand and claim a larger portion of the market.

Meanwhile, two other projects made headlines over the past few days, mainly thanks to their incredible price performance. Despite this brutal correction, Polkadot’s DOT token is up 40% over the last seven days, while LINK is up 22%. The latter even charted a new all-time high today.

In any case, the week was particularly exciting, and even though this time it was the bears who had the upper hand, it’s very interesting to see how the next few days will shape up. Is this the beginning of a larger correction, or is it just a step back in preparation for an even bigger rally? We have yet to see.

Market Data

Market Cap: $964B | 24H Vol: 144B | BTC Dominance: 67.7%

BTC: $35,442 (-14.6%) | ETH: $1,141 (-7.5%) | XRP: $0.276 (-12.9%)

Tether (USDT) January 15th Deadline on iFinex Case: Everything You Need to Know. Today is an important date for the entire cryptocurrency industry as it marks a serious deadline on the iFinex v. NYAG case. Here is everything you need to know about it and what to expect.

FinCEN Extends Comment Window on Proposed Crypto Regulations. After receiving thousands of responses and serious criticism from industry participants, the Financial Crimes Enforcement Network (FinCEN) has decided to extend the comment window on the proposed cryptocurrency regulations.

Following Coinbase And Bakkt: Winklevoss’ Gemini Reportedly Considers Going Public. Cameron and Tyler Winklevoss are reportedly exploring the option of taking their cryptocurrency exchange, Gemini, public. This means that they could follow in the footsteps of other cryptocurrency-related companies with similar intentions – namely, Coinbase and Bakkt.

Greenlight: Anchorage Secures Crypto Banking Charter from the OCC. The United States Office of the Comptroller of the Currency (OCC) has granted a cryptocurrency custodial service company a national trust charter. This puts the firm in the position to claim the mantle of a US-based national crypto bank.

4 Possible Reasons for Bitcoin’s $12K Correction After Reaching $42,000 All-Time High. Bitcoin went through its first major correction this week, sliding by more than 27% in just a few four-hour red candles. Here are some of the potential reasons for which this happened.

Crypto Market Cap Reclaims $1 Trillion as Bitcoin Sets Sights on $40K. The cryptocurrency market sees no boring days. Just a couple of days back, it was on its way back up, recovering from a major correction, and even claimed $1 trillion in market cap again. Unfortunately, today things took a turn for the worst again.

Charts

This week we have a chart analysis of Bitcoin, Ethereum, Ripple, Polkadot, and Cardano – click here for the full price analysis.

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Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. See Disclaimer for more information.

Cryptocurrency charts by TradingView.


Source: https://cryptopotato.com/bitcoin-faced-first-major-correction-in-current-bull-run-the-crypto-weekly-market-update/

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Report: Mt Gox Creditors Could Claim 90% Of The Owned Bitcoins After A CoinLab Deal

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Nearly $5 billion in bitcoin could make their way back to Mt. Gox users following a deal between creditors and CoinLab. Nevertheless, the agreement is still reportedly subject to creditor acceptance.

  • Bloomberg reporter Matt Leising offered a brief explanation of the story earlier today, noting that CoinLab has reached a deal with Mt. Gox creditors for 90% of the bitcoins they are owned.
  • Should the deal indeed proceed, the creditors would receive over 135,000 bitcoins out of 150,000. With today’s prices, this sizeable amount has a value of $4.8 billion. 
  • As those users have been waiting for over six years to receive their coins, whose value has appreciated significantly, the community speculated that they might dispose of the bitcoins, which could harm the market.
  • Founded in 2011, CoinLab partnered with Mt. Gox in late 2012 to handle transactions for the exchange in the North American region. However, the collaboration ended rather shortly as CoinLab took Mt. Gox to court, alleging that the trading platform had broken its contractual agreement. 
  • The Japan-based crypto exchange was the largest trading platform years ago, responsible for over 70% of the BTC transactions during its peak. However, it all crumbled after one of the largest hacks in the cryptocurrency field in which the attackers took 850,000 bitcoins – worth over $30 billion today.
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Source: https://cryptopotato.com/report-mt-gox-creditors-could-claim-90-of-the-owned-bitcoins-after-a-coinlab-deal/

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