Bitwise is a cryptocurrency management firm. It wrote a report last March, and it presented it to tue US SEC. It attracted a lot of attention from the cryptosphere. The report showed in detail how most cryptocurrency trading, 95% according to the report’s numbers, is spurious. Only a handful of exchanges in the world have real trade volumes. Among them are Kraken, Poloniex, Coinbase, and Binance. No surprises there.
The exciting thing is that the data from those ten exchange platforms shows that Bitcoin is the most reliable financial instrument in the world. Spreads are tight for sure. Price arbitrage is almost perfect among exchanges.
SEC has refused to authorize cryptocurrency-based ETFs because of the volatility prevalent in the cryptocurrency market. The new data puts things into a new perspective. The cryptocurrencies are not that volatile, as it turns out. The unpredictability comes from the exchanges which are working hard to manipulate the market.
It’s not such a big surprise. Most of the reported trading volume is wash trading. The exchanges incentivize traders to buy with one hand and sell with the other one. That creates the illusion of high trading volumes.
Plenty of institutional money is arriving in the crypto-verse. If you go by the numbers, investors prefer Bitcoin. Bitcoin’s dominance has grown by 50% from January to 75% as we write this. It’sThis is not a good thing for altcoins, which institutions still believe to be too volatile. Altcoins have lower trading volumes, for sure, even when you take retailing into account. Those lower volumes make those markets more susceptible to market manipulation than bitcoin
What can we do?
It’s a hard problem to solve. Incentivizing exchange platforms to stop wash trading and clean their act top is tough. Once all is said and done, if your project’s trading volumes are low, it’s not performing in the market.
Cardano is one of the projects with the best reputation in the crypto-verse. It’s trying to take things in its hands to solve the problem of market manipulation when it comes to ADA, Cardano’s cryptocurrency.
Algoz, a liquidity services provider, was recently engaged by the Cardano Foundation. The idea is to ensure liquidity, smaller spreads, and to decrease the occurrences of market manipulation by whales or by trading errors.
Algoz has been around since 2016 when the Finegom Group founded it. It provides automatic liquidity for many projects in twenty different exchanges scattered all around the world. The company has automated marketing and in-house analysis technology. Its technology allows it to detect market manipulation in digital assets and stop it. It’s not for Cardano, but for other blockchain projects as well. Other projects using Algoz’ services are Electroeum and DX.Exchange.
So why is Cardano in?
Cardano wants for ADA to be authentically liquid and be stable, just as Bitcoin is in the general market. That will level the playing field for Cardano as it performs in the market against Bitcoin and the altcoins. If this should happen, ADA will attract the same attention from institutional investors that are now flowing the BTC market with fresh money. That would ensure Cardano’s environment’s survival as well as the project’s cryptocurrency. And it would also help the market because it would become less dependent on Bitcoin, which remains the driving force in crypto.
In this, as in almost everything else, Cardano’s position is a pioneering one. It’s a strong message to all the exchange platforms that don’t want altcoins to be deceitfully propelled by sheer speculation. If Cardano’s strategy works, if it brings around institutional investors, then other blockchain projects will follow. It’s an excellent first step in cleaning up wash trading in many exchanges.
The Bitwise report was an earthquake in the crypto-verse. And that’s a good thing because many blockchain projects will think about market manipulation and do something about it. The currencies will find a way to fix things instead of just relying on the trading platforms to solve the problem.
The wash trading effect in the cryptocurrency market could improve very much if other blockchain projects follow in Cardano’s steps. And this would be how crypto becomes a legitimate market, every bit as much as the traditional financial markets.
Disclaimer: The presented information is subjected to market condition and may include the very own opinion of the author. Please do your ‘very own’ market research before making any investment in cryptocurrencies. Neither the writer nor the publication (TronWeekly.com) holds any responsibility for your financial loss.