Study Shows Majority of Bitcoin Trading is Fairy Dust

One of the top trending stories over the week-end says the majority of bitcoin trading is a hoax, according to a new study. Now before bitcoin traders get too defensive, no one is saying the cryptocurrency isn’t real. The article is just saying about ninety-five percent of spot prices that you may be using to base your investment and trading decisions, are being faked by unregulated exchanges. However, it is important to note this because it raises even more doubt on the legitimacy of bitcoin trading.

Personally, I have nothing against bitcoin. I just choose not to analyze it or trade it. However, as a student of the trading, I’m always interested in articles dealing with technological developments, trading systems, exchanges, price action, bid, offers and trading volume. As a stock, futures and Forex trader, I don’t think I could pull the trigger on a trade unless I knew the size of the orders on my side and trading against me.

I don’t trade or invest in anything I don’t know about and cryptocurrencies was one of those things. I have to admit that watching it trade and seeing the plethora of so-called experts offering advice really turned me off because it moved like it was part of a game, and the experts, well they just slapped the data on a chart and followed momentum. Anyone can do that. I can do that with data from my electric bill. So I concluded, there are no experts in the cryptocurrencies. There are just chart readers. And I have enough charts to follow.

Now there are experts in cryptocurrency technology and how it can benefit society. But expert cryptocurrency trade analysts, I don’t think so. Like I said before, they’re all chart readers. This is why I find the article on “hoax prices” fascinating because it supports my notion that one can throw anything up on a chart and someone will find a buy or a sell signal. However, trading and charting are two different things. You can be a great chart reader and a lousy trader because trading is all about controlling risk.

I’m still waiting for a cryptocurrency expert to tell me something new about supply and demand rather that the 50-day moving average crossed the 200-day moving average. Give me information.

In the article, Bitwise, an asset manager in the process of trying to list the first-ever bitcoin exchange-traded fund, said their analysis showed that “substantially all of the volume” reported on 71 out of the 81 exchanges was wash trading, a term that describes a person simultaneously selling and buying the same stock, or bitcoin in this case, to create the appearance of activity in the market. In other words, it’s not real.

Furthermore, the report went on to say that those exchanges reported an aggregated $6 billion in average daily bitcoin volume. The study finds that only $273 million of that is legitimate.

On a positive note, the volume on Coinbase Pro passed Bitwise’s test for having real volume. It posted a bitcoin spread on trades of about 1 cent. This offset CoinBene, which had nearly a $15 spread.

“It is surprising that an exchange with almost 18 times the volume of Coinbase Pro would have a spread that is 1,500 times larger,” Bitwise said in the report.

Bitwise said that “Exchanges may have an incentive to report fake volume”. But I don’t have an incentive to trade or analyze fake data. By the way, many Bitcoin expert analysts who jumped on the momentum bandwagon a couple of years ago and disappeared when the market crashed, have now moved on to marijuana stocks, so be careful there too.