The legitimacy of these figures remains questionable—are they fabricated or genuine? Tracking the authenticity of these indicators, often a blend of real and counterfeit circumstances, complicates the decision to trust publicly available data. Here, we delve into the significance of trading volumes, the reasons behind falsifying them, and the measures addressing these practices.
Trading volume for Bitcoin in late July 2021 soared to $9.2 billion as its price hit $40,000. However, its 24-hour trading volume of over $33 billion in late 2024 was overshadowed by Tether (USDT), which boasted more than $60 billion. The ascent began only in late November 2020, after averaging below $2 billion daily for several months in 2020.
Introduced in 2009 with Bitcoin’s announcement, cryptocurrency swiftly became the spotlight for investors chasing exceptional returns. The ensuing sharp rise in prices coincided with seemingly soaring trading volumes over subsequent years.
Numerous cryptocurrency enterprises have artificially inflated trading volume statistics using bots to amplify transaction counts. Their objective is to elevate the cryptocurrency’s standing, attracting fresh investors to spike demand and hence, elevate prices. Meanwhile, crypto industry monitoring websites have deployed strategies to combat this issue. Regulatory bodies have employed tactics like deploying counterfeit tokens to trap deceitful participants.
A substantial trading figure typically indicates a cryptocurrency’s liquidity and activity over a timeframe. Traders rely on liquidity to avoid being ensnared in prolonged positions.
Furthermore, notable volumes often herald upcoming price fluctuations, with volume increases frequently perceived as precursors to significant price shifts by numerous traders.
Crypto trading volume inflation involves deceptive trading approaches like automated trade execution programs, generally. For instance, a Forbes 2022 report revealed that over half of Bitcoin trades were simulated, primarily executed by bots, in tandem with insiders hyping cryptocurrencies as part of pump-and-dump strategies.
In October 2024, allegations were leveled by the Securities and Exchange Commission against three firms and nine individuals for crypto market manipulation using similar strategies. They enlisted two companies for crypto services via trading bots that automatically and artificially inflated certain cryptocurrencies’ trading volumes. Unbeknownst to those charged, the FBI had created this cryptocurrency in collaboration with the SEC to identify manipulators. Additionally, individuals conducted manual wash trades, alongside bot trading, to fabricate large volumes and simulate market traction.
Various data aggregators and cryptocurrency info sites have curbed their reporting of these fictitious transactions. CoinMarketCap, for instance, established the Data Alliance, fostering transparency among exchanges and other crypto-related bodies. As of 2024, regulatory efforts persist in devising tools (such as fake coins) to ensnare crypto swindlers, with scant evidence pointing to a slowdown in cryptocurrency-related scams, thefts, or hacks.
Artificial Intelligence (AI) is frequently promoted as the next technological leap. However, AI and robo-traders should concern investors and regulators alike, given their potential to drastically transform market manipulation practices. Some entities advocate for AI in crypto trading, releasing content spotlighting AI’s advantages in the sector. Although not necessarily with malicious intent or to artificially inflate trading volumes, endorsing AI in an environment rife with bots fabricating trades for volume purposes introduces multiple challenges. For instance, differentiating between bots engineered for deceptive trading and AI needing parameter corrections due to wash trading complexities will be challenging. Regulatory bodies will need to allocate more resources to ascertain intent, culpability, or deficiencies in program design, as poorly tested or flawed software might not always indicate malicious wash trading activities.
What Is Volume Faking?
Faking cryptocurrency trading volumes involves artificially inflating them to project an illusion of popularity, value, and trading activity, masking the true status of the asset.
Does Volume Affect Crypto?
Volume serves as a barometer of trading dynamics and sentiment towards potential price trajectories. It’s a prevalent indicator for myriad asset classes, including crypto.
Are Crypto Trading Bots Authentic?
Indeed, trading bots are real and have been deployed for trading traditional assets as well.
Awareness is often lacking regarding the fabrication of trading activity, cultivating a misleading sense of market security. Nonetheless, valid transactions abound on cryptocurrency platforms. Both regulated and some unregulated exchanges strive to safeguard traders and investors from scams. Ultimately, it’s incumbent upon users to maintain vigilance, educate themselves, and ascertain whether engaging in cryptocurrency trading is a worthy pursuit.
