Which cryptocurrency exchanges are really trustworthy?

A new report found only fourteen most popular crypto-only exchanges that can be trusted by traders. So which exchanges can you trust?

Description: There are many exchanges in the market where you can trade cryptocurrencies. Here are all the important factors that need to be looked at to determine their reputation.

As the market matures, regulation tightens and competition increases, the volume of fake trades at leading cryptocurrency exchanges gradually decreases. However, the problem remains relevant — most platforms still display fake trading volumes. Researchers from Coin Metrics have developed an original approach to assessing the reliability of exchanges data on volumes. It revealed that just over a dozen trading platforms are trustworthy.

Volume weighted correlation

Based on quantitative and qualitative indicators, the CoinMetrics Trusted Volume Framework is designed to improve the accuracy of exchange’s trading volumes and the objectivity of platform comparisons.

The researchers evaluated popular trading platforms in three stages:

• Determining the degree of correlation of trading volumes between platforms;
• Web traffic analysis;
• Analysis of a number of qualitative indicators.

The first metric illustrates how closely price data of platforms correlate with corresponding indicators of exchanges with a long history and well-proven in the market.

Coinmetrics representatives:

“In the course of the research we studied the indicators of the hourly trading volume of the regulated American exchanges, which have been operating for more than one year. These trading platforms support the U.S. dollar, which further enhances their credibility. The list includes Bitstamp, Bittrex, Coinbase, Gemini, itBit and Kraken. The information on trading volumes is collected for the period from June 1 to June 30, 2020”.

Experts stressed that in periods of high volatility, bursts of trading activity on various exchanges should be approximately comparable “magnitude”. Conversely, during a sideways movement, the decline in activity on different trading platforms should be approximately even. Therefore, the exchanges with fair trade volumes will stand out against the platforms that display more or less reliable data.

The image above illustrates the correlation of trading volumes of different exchanges for some popular trading pairs with the indicators of the “trusted” group of trading platforms created by Coin Metrics. The assets are sorted by the degree of correlation with Bitcoin price action.

According to analysts, any exchange with a degree of correlation above 80% passes this test. The table below shows that the top three are American trading platforms Coinbase and Kraken, as well as the oldest European exchange Bitstamp. The most visited one, Binance, is in 4th place.

The second stage of research involves assessing the correlation between the reported exchange trading volume and its daily web traffic.

“Theoretically, the trading volume of the exchange should to some extent correlate with the number of traders visiting the site. An increase in the number of users should cause an increase in volume, and vice versa.”

The researchers are convinced that exchanges displaying fake data should have a relatively high trading volume to number of traders compared to other trading platforms.

Analysts compared the trading volumes of different exchangers with the number of visits on their websites in 24 hours. The result is illustrated in the chart below.

The following chart shows a similar comparison but no longer takes into account web page views but visits (according to SimilarWeb).

The highest figure was for Bibox — $2502.67 per trader. Consequently, the probability of fake data on this trading platform is extremely high.

“Any exchange with an index higher than $50 inspires less confidence compared to regulated exchanges, where the average value is $21.96.”

The chart below shows that exchanges with a relatively small ratio of visits and visits to the volume of trade are located close to Coinbase, Gemini, Bittrex and other “trusted” exchanges.

OKEx, HitBTC, Huobi, Bibox, LBank, Liquid and OKCoin are kept separate from the “trusted” trading platforms.

The final stage of research

During the final stage of the research Coin Metrics assessed the exchanges on a number of qualitative parameters, including:

• REST API and WebSocket protocol support;
• Availability of historical trading data and other information in real time;
• Availability of trading policy and market surveillance;
• The requirement to pass KYC procedures for basic trading operations;
• The offers for deposit insurance;
• The ability to deposit and withdraw fiat money;
• The amount of trading commissions;
• Listing standards, etc.

The three leaders in terms of quality characteristics are Coinbase, Binance.US and Gemini.

Any exchange that did not score at least 50 points in this test has failed. Below is a summary table with the results of all three tests.

As you can see, all three tests were failed by only one exchange — OKEx. Four trading platforms — Bibox, ZB.com, LBank and HitBTC — have successfully passed only one stage. Fourteen exchanges succeeded in passing all three tests:

• Binance;
• Binance.US;
• Bitbank;
• Bitfinex;
• bitFlyer;
• Bitstamp;
• Bittrex;
• CEX.IO;
• Coinbase;
• Gate.io;
• Gemini;
• itBit.io;
• Kraken;
• Poloniex.

The problem of fair trade volumes on exchanges is still relevant for the industry. Many companies are striving to improve the methodology of evaluation of activity on trading platforms by offering their original approaches. As a result, the ratings of trusted exchanges may differ from one analytic resource to another.

Below are the services that seek to sift out fairy volumes of trading platforms:

• CoinGecko;
• Bitcoin Trade Volume;
• Blockchain Transparency Institute.

Researchers from Coin Metrics have found that exchanges with relatively high ratios of trading volume per trader are very likely to display data that is very far from reality. These platforms usually do not get enough points based on qualitative parameters. A comprehensive assessment approach that uses quantitative and qualitative indicators sifts out many trading platforms with overvalued activity and allows for more objective ratings in the future. It is possible that as competition between exchanges continues to intensify, legal uncertainty is removed and the industry as a whole grows older, the problem of fake trade volumes will continue to lose its urgency.

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