Researchers Uncover Likely Fake Volume

Korean exchange Bithumb reported volumes more than 10x its summertime averages in early November., a research firm linked with Hacken, decided to vet the data. They made the report available to CCN and it’s at the bottom of this article.

Interesting patterns were uncovered when Bithumb’s trading patterns were put under a microscope. The researchers broke the trading activity down into three periods: August 25th to October 7th, October 8th to November 11th, and the third period, November 12th to present day.

During the first period, they discovered that every day around the same time, the majority of Bithumb’s Bitcoin trading would take place in the space of an hour.

Due to the daily spikes around 11AM local time, a “comb pattern” emerges.

Between 90 and 95% of the day’s trading volume at Bithumb took place around 11AM each day. As the researchers write, it created a “comb-like” pattern on the chart above. That chart is the hourly volume for the month of September.

During the second period beginning October 8th, Bithumb’s volumes divorce from the price movement of the same period, posting irregular volumes on a regular basis. On October 8th, the daily volume was 22,000 BTC, while on November 6th, they posted more than 100,000 BTC in trade volume.

Volume Did Not Correspond To Significant Price Movements

On November 12th, volume was just over 1,500 BTC. If this volume isn’t fake, the researchers conclude, then it’s highly irregular. Something’s not right with this, to say the least. If similar trading activity were seen on any regulated mercantile exchange of the old world financial system, regulators would be interested, to say the least.

An interesting thing to note is that following November 12th, the Bitcoin price dropped nearly $1,000. It was the beginning of the slide from over $6,500 to the current levels of today. Typically, any major price movement will spur volume, regardless of direction. People will panic sell and people will seize buy opportunities. Even when people aren’t in charge of the decisions, trading bots will take advantage of price movement. Again, they will do this regardless of price momentum. Also, pre-configured trades are often triggered when unexpected price changes take place. But a slide of hundreds upon hundreds of dollars did nothing to return the volume of Bithumb to its previous highs. Volume following November 12th was what the researchers consider “natural” levels.

Volume following November 12th was what the researchers consider “natural” levels.

The researchers calculated the average trading size on Bithumb and noted that it drastically increased over the periods studied. At the beginning of the summer, the average trade at Bithumb was around .21 BTC prior to the first period studied.

During the first period, it increased to more than 1.8 BTC. The second period saw even greater increases, to more than 5.8 BTC per trade. In real terms, this would mean that even the low ends of the average were trading more than $4,000 worth of BTC in every swap – all of a sudden.

Also, prior to the first period, only a handful of trades (200 or so) were over 2 BTC at all. Yet the average trade size just a month or so later is more than twice that amount. The following chart shows BTC/KRW trades on Bithumb for September 9th. The period that raises the average and is significantly higher lasted only 5 minutes.

The researchers calculated the average trading size on Bithumb and noted that it drastically increased over the periods studied.

This trend would be repeated daily for the next 30 or more days. In the particular example shown above, 39% of the day’s trades were conducted in that five minute period for a total of more than 34,000 BTC, which accounts for nearly all of the volume reported by Bithumb that day.

Fast forward to the day before the drop-off point, which happens to also be the day Bitcoin prices began to slide. The following pie chart shows the average transaction sizes during a one hour period which started at 3AM local time. IT is vastly higher than normal transaction size on the same exchange.

Waltonchain (WTC) Pumped and Traded During Same Period

All the pairs traded on Bithumb saw similar trading patterns at various times, though never all at once. Thus, the volume reported ultimately to places like CoinMarketCap was not just representative of Bitcoin/fiat pairs, but also the pairs offered on various altcoins, further inflating the figures. The token that stands out among them, according to the report, is Waltonchain. As the reports’ authors write:

WTC stands out from all the coins we observed, as it was only listed on the exchange on the last day of August and had the shortest pump period which started on October 28th and lasted till November 11th. For or that reason its pump was one of the most intensive. The inflated daily volume of Waltonchain jumped by 350 times from 348k WTC (on average prior to…

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