Bitwise reports 95% fake BTC volume to the SEC, but BTC ETF still viable

Since March of 2017, there have been over a dozen Bitcoin ETF applications filed with the SEC by as many as ten different companies.

  • By Tom Cleveland

  • March 27, 2019
  • 2:23 am BST

Since March of 2017, there have been over a dozen Bitcoin ETF applications filed with the SEC by as many as ten different companies. The SEC has remained steadfast for two years now that it is “uncomfortable” with the Bitcoin trading market. Reasons cited have been price manipulation, especially in overseas unregulated exchanges, the lack of custodial services to protect investors, and the lack of proper monitoring software at exchanges to ferret out potential attempts to manipulate prices.

In a recent report to the SEC, Bitwise, an asset management and research firm, confirmed that 95% of Bitcoin trading volume is fake. The most quoted data aggregator,, has posted daily trading volume for Bitcoin of nearly $6 billion per day. However, the actual figure, based on several reliable analytical methods, is more likely to be $273 million per day, concentrated within the top ten exchanges, at least according to the research performed by Bitwise. failed to comment.

Reports last December by the Blockchain Transparency Institute had already disclosed that suspicions of volume over reporting were correct. Based on new algorithms that the firm had tested and fine-tuned, over-reporting was omnipresent in the nascent crypto exchange industry. Results were based upon “data results from activities such as monitoring order books, analysis of volume data points, interviews with market makers and high-frequency traders, and an updated algorithm to track these data.”

As we reported: “When BTI released its report in December, a shockwave went through the industry… The news headline read: “Over 80% Of The Top 25 BTC Pairs On Coinmarketcap Is Wash Traded”…The report also revealed that “most of these pairs have an actual volume of less than 1% of the volume reported on Coinmarketcap. Of the top 25 BTC pairs crypto exchanges, only 2 were discovered not to be wash trading their volume: Binance and Bitfinex.”

Bitwise reported that: “Despite its widespread use, the data is wrong. It includes a large amount of fake and/or non-economic trading volume, thereby giving a fundamentally mistaken impression of the true size and nature of the bitcoin market.” The report went on to claim that: “Only 10 cryptocurrency exchanges have actual volume, including major names like Binance, Coinbase, Kraken, Gemini, and Bittrex.”

The individual takeaways from the report were as follows:

  • 95% of reported BTC spot volume is fake;
  • Likely motive is listing fees (can be $1-3M);
  • Real daily spot volume is ~$270M;
  • 10 exchanges make up almost all of the real trading volume;
  • Majority of the 10 are quasi-regulated

The good news of their research is that spreads among these ten exchanges were very tight, an indication that the Bitcoin market is behaving in a mature manner within the purview of these ten exchanges: “People looked at cryptocurrency and said this market is a mess; that’s because they were looking at data that was manipulated. Arbitrage between the 10 real exchanges has improved significantly. The avg price deviation of any one exchange from the aggregate price is now less than 0.10%! Well below the arbitrage band considering exchange-level fees (0.10-0.30%) & hedging costs.”

One of the overriding issues in the past has been that the SEC felt that unregulated overseas exchanges were unduly influencing Bitcoin pricing, but the Bitwise research confirms that the market is primarily U.S.-focused, especially due to a thriving futures market offered by the CME. Market monitoring software has also been installed at five of the ten major exchanges, thus dotting one more “i” in lieu of a final approval.

An independent observer arrived at the following conclusion: “Perhaps more importantly, according to the presentation of Bitwise, the U.S. is the largest BTC exchange market in the world by daily volume, and given that most U.S. exchanges like Gemini and Coinbase are strictly regulated and compliant with existing laws, an argument can be made that overseas markets have less impact on the price trend of bitcoin than expected. Moreover, strictly regulated bitcoin futures markets in the U.S. are responsible for a relatively large portion of the global bitcoin volume at 35 percent.”

Will the SEC accept this new market information and rule favorably on a Bitcoin ETF application in the near term? No one at the SEC has ever revealed a potential timeframe that an approval might be forthcoming for a BTC ETF, but, with each passing day, the reasons for denying an application appear to be dissipating, as the Bitcoin trading market continues to mature.