The Crypto Space Has Shockingly Low Total Liquidity of $500 Million or Less, and Numerous ‘top’ Exchanges Caught Faking Their Volume

November 13, 2019 / by Zachary Mashiach

CoinMarketCap has launched a new liquidity feature, and the results are shocking. Out of the 54 cryptocurrency exchanges listed on CoinMarketCap’s liquidity page, which includes most major exchanges, there is only approximately $350 million of liquidity.

Possibly, if all of the other exchanges that are not listed were measured and added, the crypto space would have a total liquidity of $500 million. This could be an overly generous estimate. That means the total crypto market cap of $240 billion is being held up by only $350-500 million in the order books.

In other words, somewhere around 50,000 Bitcoins (BTC) would be enough to drain all of the order books on every crypto exchange to zero, and even a dump of 1,000-10,000 Bitcoins (BTC) could cause a major crash in market price. 

Previously volume had been used as a way to measure the popularity and credibility of both cryptocurrencies and exchanges, but this new liquidity data shows that volume is now practically a worthless statistic. Essentially, some cryptocurrency exchanges began pumping their volume with wash trading and transaction fee ‘mining,’ where traders are offered free coins for trading in order to rise to the top of the CoinMarketCap ranks and appear more reputable in general. Other cryptocurrency exchanges followed suit, and suddenly, the CoinMarketCap exchange rankings had many relatively unknown exchanges in the top ranks. 

For example, Binance, HitBTC, Huobi, OKEx, and Bitfinex are known as being the biggest cryptocurrency exchanges in the world, yet on CoinMarketCap’s volume rankings, they are ranked at #15, #29, #43, #28, and #75, respectively. Somehow, dozens of relatively new and unknown exchanges had managed to far outrank these well-known crypto exchange giants. The liquidity numbers have taken this chaos and restored it to sanity. Binance, HitBTC, Huobi, OKEx, and Bitfinex are ranked #1, #2, #3, #4, and #5 respectively. 

EXX is an excellent example of how exchanges have been defrauding the system. EXX was ranked the #1 cryptocurrency exchange in the world on CoinMarketCap, according to volume. That’s despite it being highly obscure. EXX has a volume of $1.3 billion but liquidity of only $440,000. Clearly, most of the volume on EXX is fake, and the trading activity on EXX is quite low. 

Other examples include:

  • Bibox that has volume of $1.05 billion and liquidity of $300,000,
  • ZB that has volume of $483 million and liquidity of $310,000,
  • BitMart that has volume of $575 million and liquidity of $1.3 million,
  • P2PB2Pthat has volume of $1.01 billion and liquidity of $1.6 million,
  • CoinBene that has volume of $1.25 billion and liquidity of $1.65 million,
  • Coineal that has volume of $1 billion and liquidity of $2.2 million,
  • FCoin that has volume of $216 million and liquidity of $2.3 million,
  • LBank that has volume of $925 million and liquidity of $2.5 million,
  • BitForex that has volume of $805 million and liquidity of $2.5 million,
  • Exrates that has volume of $600 million and liquidity of $2.55 million,
  • BitZ that has volume of $0.95 billion and liquidity of $4.2 million,
  • CoinEx that has volume of $1.1 billion and liquidity of $4.4 million,
  • BigONE that has volume of $700 million and liquidity of $5.2 million,
  • IDAX that has volume of $1 billion and liquidity of $6.3 million.

In other words, EXX, Bibox, ZB, BitMart, P2PB2B, CoinBene, Coineal, FCoin, LBank, BitForex, Exrates, BitZ, CoinEx, BigONE, and IDAX have been faking their liquidity. 

There are many more exchanges than those listed here that are fraudulently pumping up their volume numbers, including possibly some of the exchanges that do have the highest liquidity. 

For example, Bitfinex, Coinbase, Bittrex, Gemini, Poloniex, Bitstamp, and HitBTC have volume to liquidity ratios of 3.1, 8, 1.5, 2, 3.6, 8.7, and 7.6 respectively. It seems that honest exchanges generally have a volume to liquidity ratio which is less than 10. 

However, Bitfinex, OKEx, and Huobi have volume to liquidity ratios of 15.5, 27.5, and 21.1 respectively, possibly suggesting that their volumes are inflated too despite being in the top ranks for liquidity. This could perhaps be explained by widespread bot trading on these top exchanges, as well as programs that reward traders who generate higher volumes. 

Zooming out, this new data is actually very good news for traders. For the first time in a long time, traders can now choose exchanges based on liquidity, which is what really matters. There are 9 exchanges with liquidity in excess of $10 million including Binance, HitBTC, Huobi, OKEx, Bitfinex, Coinbase, DigiFinex, MXC, and Bittrex. These exchanges are the most desirable for trading purposes. 

On the other hand, this new data seemingly kills the argument that institutional traders are moving into the crypto space. Even Binance and HitBTC would experience extreme price volatility if an institutional trader was doing $10 million trades or about 1,000 Bitcoins (BTC), and even a $1 million trade would probably rock the market. As for nine exchanges with liquidity less than $10 million, a mere $1 million or about 100 Bitcoins (BTC) sell order would wreck the market. 

There are 2,155 wallets with balances in excess of 1,000 Bitcoins (BTC), and if one of these dump its coins, it would cause a market crash. Fifteen wallets have balances in excess of 50,000 Bitcoins (BTC), enough to drain all of the order books in the crypto space. 

Unfortunately, this data suggests that the crypto market, and therefore the crypto space, is dangerously centralized. 

Considering that Bitcoin (BTC) has been around 10 years and has not been destroyed yet by a big whale, a doomsday scenario is probably unlikely, although it is not impossible. The more likely scenario is persistent market manipulation by whales since any billionaire in the world could literally control the entire market. This goes both ways, meaning such market manipulation can result in both crashes and rallies, and indeed, this may partially explain the relatively high frequency of significant market movements in the crypto space. 

So the next time a major price movement happens, and crypto journalists scramble to find a fundamental reason for the movement, in reality, it may be nothing more than a whale playing with the market. Also, perhaps the Securities and Exchange Commission (SEC) has been right all along in saying it will not allow a Bitcoin exchange-traded fund (ETF) due to the crypto market lacking liquidity and therefore being prone to manipulation.