Grasshopper Capital Daily: Is Volume Real?

Is the Volume Real?
When you visit CoinMarketCap, one of the most prominent statistics is volume. Large coins like Ethereum and Bitcoin typically have volume over $1B every day. However, if you click on the volume number, you'll realize that the volume is split across many exchanges and the exchanges don'tshare liquidity. This means that a trade on GDAX isn't routed to Gemini if a better price is available. This is different than equity markets where volume is shared. The largest Bitcoin exchange by volume today (3/12/18) is Bitfinex which is exchanging ~$550MM in volume. This means that effectively Bitcoin's most liquid exchange is doing 10% of the 24-hour volume reported on CoinMarketCap ($6B). 

Yesterday, Sylvain Ribes wrote a piece titled, "Chasing fake volume: a crypto-plague". It's a pretty damning piece where he accuses OKex and Huobi of having mostly fake volume. OKex's volume is up to 95% fake while Huobi is up to 80% fake. Sylvain writes a few disclaimers why his data shouldn't be taken at face value, but as someone who has personally experienced the slippage he is referring to, I doubt his statistics are fake. He believes that up to $3B of daily volume is illusionary. 

Many people talk about how one of the biggest benefits of tokenization is liquidity, but that is only true is there is sufficient volume to create an active market. There are few tokens who have sufficient volume to handle trades above $100,000. Many of these tokens do have active OTC markets which allow trades above $100,000 to occur with little slippage. However, tokens that trade outside the top 10 don't always have active OTC markets. It's questionable if the volume displayed on smaller tokens are real and what slippage would occur when large trades are placed. As Sylvain writes,"

Crypto doesn‘t need regulation!”, we all claim. It is high time we proved it. Because as it stands the state of crypto is arguably a testament to the failure of the free-market.

How can investors/consumers purchase a token when they have no guarantees that the data they are relying on is real? I don't see tokens becoming mainstream until we can trade on exchanges that we can trust.

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