A recent study looking into the trading volumes of smaller cryptocurrencies has found evidence that trading volume on some cryptocurrency exchanges may be inflated. While that has effects on those smaller cryptocurrencies, it leads to questions about whether trading volume data from larger cryptocurrencies such as Bitcoin are similarly inflated. If so, might that play a role in some of the major swings we see in Bitcoin’s price?
The study sought to assess the trading volume of exchanges by selling $50,000 of a cryptocurrency on various exchanges. This would measure the extent to which the price of that cryptocurrency would fall on that exchange. On exchanges with significant amounts of trading volume, one would expect to see smaller falls in price than on exchanges with smaller trading volumes.
When making trades on major exchanges that processed cryptocurrency to fiat transactions, not much of a decrease was seen. But on OKEx, which at one point was the world’s largest cryptocurrency exchange and is still within the top four, that same sale of $50,000 worth of cryptocurrency saw much more significant price decreases, leading to havoc on that exchange.
The study’s author concluded that cryptocurrency-only exchanges such as OKEx either fabricate or inflate their trading volume, whereas cryptocurrency-fiat exchanges do not. Even larger cryptocurrencies were at risk of plummeting 10% with a sale of just $50,000 on cryptocurrency-only exchanges.
If the results of this study are true, and trading volumes on some major exchanges are inflated, that means that a determined manipulator could potentially push market prices lower through targeted sales on a cryptocurrency-only exchange, buy those cryptocurrencies at deflated prices, and then sell them at a higher price on another exchange.
While current research has only dealt with relatively small currencies, could those same effects take place in Bitcoin markets? It’s certainly possible, especially since Bitcoin markets remain relatively young and small in comparison with more-established financial markets. Whether or not that has been done is another matter. While it would certainly be difficult and undoubtedly expensive, it wouldn’t be impossible for someone with deep enough pockets.
This study shouldn’t be alarming to Bitcoin IRA investors, however, as any manipulation that might be taking place to push Bitcoin’s price down will become less and less possible as Bitcoin markets mature and become larger and more popular. Since investing in a Bitcoin IRA is a long-term endeavor, short-term price fluctuations will be more than overcome by continued long-term growth.