Fact Checking Cryptoexchange Volumes 2
In a March 10, 2018 article posted to the Medium, trader and investor Sylvain Ribes' charged that many top exchanges (as measured by volume), and OKex in particular, are greatly exaggerating their volume. Ribes' article has been widely disseminated by numerous cryptocurrency experts, who praise his methodology and insights. Ribes' analysis did not find evidence that HitBTC or Binance are involved in falsifying their trading volumes, though Ribes has acknowledged that both deserve a closer look. His analysis sparked praise from Binance's CEO, who called it a "good in-depth analysis."
Below you will find a deep dive of our research.
DEFINING THE QUESTION
The request is that we analyze "the first two claims" made in the linked article, "Chasing fake volume: a crypto plague," by Sylvain Ribes. We understand the first two claims, as laid out in the articles summary, to be as follows:
1) More than $3 billion of all cryptoassets' volume is fabricated, with "some figures being overstated by as much as 95%."
2) OKex, the #1 exchange as rated by volume, is the primary offender.
However, since the question pertains to HitBTC and Binance, we have to understand the above claims accordingly. Thus, we interpret #1 to mean that we are to determine whether the author is correct that he found evidence of gross overstatement of trading volume in several cryptocurrency exchanges and interpret #2 to verify whether HitBTC and Binance lack the evidence of misrepresenting their trading volume that implicates OKex.
Since the question relies on an advanced understanding of cryptocurrency exchanges, we did not attempt to prove or disprove Ribes' claims ourselves. Instead, we sought other articles by other financial experts.
RELIABILITY OF RIBES' STUDY
Ribes' analysis is highly-regarded by other cryptocurrency experts, for example being presented on the All Cryptocurrencies news page under the title, "Study Reveals Major Cryptocurrency Exchanges Volume Fabricated." This article states that Ribes' test does indeed prove his case, at least regarding OKex, Kraken, GDAX and Bitfinex. It unfortunately does not directly reference the same tests conducted for HitBTC and Binance. Ribes' study has also been disseminated through numerous other channels, such as Crytocurrency Investing, the French Crypto Analyse site, and the Chinese Jianshu site, among many others.
Ribes challenged both OKex and Huobi Pro to comment on his study on Twitter. Neither responded to Ribes directly, and though both companies have active Twitter accounts, we could not find any acknowledgement or response to Ribes' article in either. However, OKex did respond in an interview on Jianshu; translation proved problematic and since OKex is tangential to the question we did not attempt to dive deeply into this response. The short version of it is that OKex denies wrongdoing, though Jianshu seems unconvinced. We were unable to find a response by OKex in any English language source, which we find to be telling.
Though we found dozens of articles referencing Ribes' work positively, we did not find any third party who took issue with his methodology or calculations. Indeed, as one Australian observer notes, "It's not possible to overstate how incredible these results are. It's not a small difference, or within any remotely conceivable margin of error. These are extraordinarily hyper-blatant numbers." By all accounts across innumerable articles and papers, Ribes' work is rock-solid and completely reliable.
HITBTC AND BINANCE RESULTS
So what does this mean for HitBTC and Binance? As explained on Bitcoin.com, the results for HitBTC and Binance are interesting, but not immediately suspicious. Binance CEO Zhao Changpeng called Ribes' study a "good in-depth analysis," adding with regard to Binance's policies: "We like liquidity, but we don’t like 'flash' liquidity, which are used by many HFT 'market makers' — Binance believes having these restrictions help the much larger number of retail traders." We did not find any official response from HitBTC on their Twitter feed. Given that Ribes says that their numbers "cannot be deemed significant," they may simply not have felt the need to comment.
While Ribes' initial work does not paint HitBTC and Binance in a bad light, others have charged that "HitBTC volumes are obviously fake." Ribes has acknowledged the concern, stating, "I will definitely try to model more accurately what should happen in lower pair volumes, and have a more in-depth look at HitBTC and Binance in the future."
Sylvain Ribes' article, "Chasing fake volume: a crypto plague," has received wide attention and even acclaim from experts in cryptocurrencies, none of whom have questioned his methodologies or analysis. To answer the question of the two claims made in Ribes' piece: 1) It seems beyond a reasonable doubt that many of cryptocurrency exchanges are overstating their volume; however, Ribes' current analysis does not implicate HitBTC or Binance. 2) OKex is definitely the biggest offender, and even if some exaggeration of trade volume is occurring at HitBTC or Binance, it is so small that Ribes' test did not detect it, though he has promised to look more closely at both exchanges in the future.