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CoinMarketCap Targets Crypto Market Without Manipulation

  • CoinMarketCap launched a new tool to combat fake trading volumes.
  • The firm aims to bring more clarity into the space, which has been tainted by manipulation.
  • Different companies in the industry are making strides towards a market free of manipulation.

The cryptocurrency market has been tainted by manipulation since its early beginnings. As a result, CoinMarketCap, the leading cryptocurrency data tracking services platform, has been making strides towards a market free of manipulation. The firm recently announced the introduction of a new tool that will provide the “real trading activity” of most of the cryptocurrency exchanges in the industry.

CoinMarketCap’s Liquidity

CoinMarketCap is launching a new metric dubbed Liquidity that aims to combat fake trading volumes in the cryptocurrency industry. Liquidity will serve as the default criteria for ranking cryptocurrency pairs and exchanges.

The tool is aiming to help users identify the most liquid markets in the industry. With more than 4,000 crypto assets listed on this platform, the company acknowledges the hardships associated with transparency. Therefore, Liquidity takes into consideration order-book depth changes and distance from mid-price.

According to CoinMarketCap Chief Strategy Officer Carylyne Chan:

We believe our adaptive methodology will make our metric very difficult to ‘game’ as orders would need to be placed close to the mid-price, or risk being counter-productive to the Liquidity metric scoring.

When looking at the new Liquidity rankings compared to the adjusted volumes category, the divergence is preposterous. CoinBene, a Singapore-based crypto exchange, ranks No. 1 with an adjusted trading volume of $1.2 billion over the last 24 hours. However, based on the newest barometer, Binance was the No. 1 exchange with liquidity of $45.6 million while CoinBene was No. 22 with only $3 million.

CoinMarketCap’s rankings: adjusted volume vs. Liquidity. | Source: CoinMarketCap

Carylyne Chan believes that the new metric will encourage the provision of liquidity instead of the inflation of volumes. This could help the industry as a whole, which has been scarred by market manipulation over the years.

Market Manipulation

According to Investopedia, market manipulation is:

The act of artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain.

Due to the lack of regulation in the space, many companies have been able to inflate their trading volumes. The idea is to create the illusion of active markets for their cryptocurrencies and exchanges. In fact, Alexey Andryunin, the head of Gotbit, a Russia-based unregistered startup, will run bots for a small fee to trade tokens back and forth on exchanges until both have enough “volume” to get listed on CoinMarketCap.

These types of operations are common in the cryptocurrency market, which is known for its lack of transparency. Bitwise Asset Management produced a report earlier this year claiming that unregulated exchanges fake 95% of spot bitcoin trading volume. And, only 10 crypto exchanges around the world were publishing reliable data about the trading volumes on their platforms.

Even U.S. Securities Exchange Commission (SEC) Chairman Jay Clayton has been paying attention to these questionable practices in the industry, which is why he is reluctant to add bitcoin ETFs as fears of market manipulation mount.

Several companies in the industry have taken different approaches to bring some regulation into the space and ensure that it is free of manipulation. Anchorage, Bittrex, Circle, Coinbase, Cumberland, Genesis, Grayscale, and Kraken, for instance, joined forces in October to create the Crypto Rating Council (CRC). This is an initiative to independently assess cryptocurrencies in order to estimate their likelihood of being classified as securities under U.S. law.

Crypto Ratings Council aims to lead crypto firms to comply with U.S. laws. | Source: Twitter

Now, CoinMarketCap’s Liquidity could bring the market a step closer to become free of manipulation.

This article was edited by Sam Bourgi, Gerelyn Terzo.

Last modified: November 12, 2019 19:20 UTC