CoinMarketCap Counters Fake Volume with ‘Liquidity’ Metric

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CoinMarketCap, the popular cryptocurrency data reporter, has finally taken steps to counter the falsified information it is fed from exchanges that have led to an almost laughable exchange ranking mechanism that has prompted questions of just how much it can be trusted. Wash trading and other illegal practices have led to largely unknown exchanges receiving high rankings on the site, but CoinMarketCap has introduced a new ‘liquidity’ feature it hopes will lead to more accurate reporting.

A New Metric Sweeps Clean

CoinMarketCap announced their intentions to reassess their data reporting methodologies back in August following a steady stream of criticism within the community, announcing on Monday that ‘volume’ would now be replaced with ‘liquidity’. This new metric is defined by CoinMarketCap as “the ease of being able to trade in and out of an asset” and looks at more than just the amount of trading conducted during a set period, taking into account other factors such as order-book depth changes and distance from mid-price. Calculations are made by taking samples at regular intervals over a 24-hour period and averaging the result, which better takes global time zones into account.

Clear Impact on Rankings

The change has had a clear impact, which can be simply seen by comparing the exchanges when sorted by reported volume and the new liquidity metric:


As we can clearly see, when sorted by the actual ability to sell tokens at the current price, Binance and HitBTC come out on top, with double the liquidity of the next best exchange, Huobi. As for the top 10 by reported volume (excluding BitMEX), second placed EXX comes in 44th with $440,000 liquidity, while third placed CoinEgg and fourth placed Bilaxy don’t even make the list. CoinMarketCap are confident that their new methodology will prove to be a far more reliable source of information going forward as it will be very hard to manipulate:

The adaptive methodology will make the Liquidity metric very difficult to “game” as orders would need to be placed close to the mid-price, or risk being counter-productive to the Liquidity metric scoring.

Cryptoassets Next

With market pairs and exchanges now subject to the new liquidity system, the final step in CoinMarketCap’s three-step process is to apply the methodology to cryptoassets themselves, although they have not stated when this will be completed by. Given the site’s popularity in the space it is nice to see them taking action against the manipulation that has been going on for some time, and might finally start to make exchanges think twice about the benefits of engaging in such activities if it is not being reported.