A crypto data analytics provider has recently revealed on Twitter that trading volume of a cryptocurrency exchange could be significantly impacted by leverage trading feature, which essentially lets traders open positions much larger than what they have in their accounts.
When evaluating the performance of a cryptocurrency exchange, volumes usually play a substantial role in determining whether or not it is doing well. However, when it comes to putting forth genuine numbers, most leading trading platforms go out of the way to make sure they don’t. And thus, emerge a row of controversies that shed light on unethical business tactics such as inflating the number of transactions and faking trading volumes.
A questionable yet legal market tactic is leverage trading, also known as margin trading. This approach has gained massive traction in recent days considering several exchange platforms offer leverage ratios as high as 100 or 125x. Although this tactic allows the trader to capitalize on significant returns, there is always a risk of losing a considerable chunk of money.
Leverage trading – boon or bane?
A recent tweet published by Skew (@skewdotcom) indicates that these leverage trading numbers could very well be getting included in measuring the volume of exchange, thus resulting in a puffed up figure. It measured the trading volume of BitFlyer, a Japanese cryptocurrency exchange that is slated to be playing a big role in making the country a hotbed of crypto investments in 2020.
The results indicate that when FSA reduced the leverage ratios from 15x to 4x on 28th May 2019, the trading volumes also dipped significantly. This implies that offering leveraging may just be another one of exchanges’ strategies to sway the actual volume numbers. With popular crypto exchanges, such as Binance, introducing popular features like futures trading and high leverage trading, the final numbers may not be as genuine as one might think.
A wake-up call for regulatory bodies?
Meanwhile, faking trade volumes has already been red-flagged by several financial institutions around the world, including the US Securities and Exchanges Commission (SEC) which deduced from a Bitwise report, on 20th March 2019, that as much as ninety-five percent (95%) of Bitcoin trading volume is manipulated in an attempt to attract bigger consumer base and charge cryptocurrency issuing companies higher for listing their coins on the platform.
Now, with Binance rolling out a 75x leveraging feature on twenty leading altcoins and Bitcoin futures volumes reaching a twenty billion US dollars ($20 billion) figure within twenty-four hours, one needs to reassess as to how much of this is attributed to leverage trading.
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