Research on exchange brushing volume: how to estimate the exchange's fake trading volume?
Original author: X-explore, Wu said blockchain
Wu said that he has reported that since 2023, the trading volume of cryptocurrency exchanges has increased significantly. In January this year, the volume of derivatives trading on major exchanges increased by 47.6% from the previous month. And this soaring transaction volume is likely to be mixed with false transactions as the article said.
Brush trading on cryptocurrency exchanges is not a new topic. Due to the lack of supervision of centralized exchanges, some exchanges tend to fake trading volume to cover up the real trading volume, thereby improving their trading volume rankings. Therefore, we constructed volume analysis methods to identify and illustrate false volumes.
We obtained historical K-line data, real-time depth data and real-time transaction data of several mainstream exchanges through open APIs. These exchanges include Binance, Bybit, OKX, Bitget, Phemex, Kucoin, and dYdX.
1. Overview of the trading volume of each exchange
From the figure below, we can see that since 2023, the trading volume of cryptocurrency exchanges has increased significantly; however, the trading volume pattern of Phemex exchange is abnormal.
The chart below shows Phemex's price and volume graph for the uBTCUSD trading pair. It can be clearly seen that from August 19, 2022, the transaction volume increased rapidly, and from September 16, 2022 to November 19, 2022, this crazy transaction volume was staged again. After that, without any sign of it, the trading volume dropped sharply and dropped the level to the trading volume before August 19, 2022. From January 2023, volume appears to be rebounding again and continues at a high level.
2. Research on volume-price relationship
As a rule of thumb, price fluctuations in the market lead to surges in trading volume as investors close their trades, or open new ones. In our experience, cyclically large trading volumes tend to follow large price falls/rises, especially in futures/derivatives markets.
Considering that cryptocurrencies have the characteristics of leveraged trading, any violent movement in the market may be amplified and lead to stop profit and stop loss. This will be a big reason for the spike in transaction volume. Therefore, we take the change of Phemex trading volume when the price fluctuates greatly as one of the targets of the investigation.
Our analysis of the (Pearson) correlation coefficients of mainstream exchanges shows that the correlation coefficient of dydx has a periodicity related to trading mining income activities. Binance, Bitget, OKX, and Bybit have a strong linear relationship, while Kucoin has a weak linear relationship, and Phemex is at the bottom.
Therefore, we can infer that Phemex has false trading volume behavior, and false trading volume will be carried out when the market price is stable, and abnormally enlarged trading volume often occurs during this period.
3. Transaction order flow
We also analyzed recent transactions on several exchanges.
Large market fluctuations often result in large trading volumes. This is usually due to:
Sudden increase and influx of transactions
large transaction
In the Phemex exchange, we did not discover an obvious correlation between the original transaction order flow and the k-line transaction volume, and the size of the transaction order did not show randomness. Compared to Binance, transaction size is relatively stagnant. What changes is the density of deals, not the size of individual deals.
4. Order Book Depth vs Volume
Depth is considered an important measure of an exchange's liquidity. Traders prefer markets with better depth because transaction costs are lower. We investigate order book depth across exchanges to determine if there are any patterns or trends that may be observed.
Overall, Binance and dYdX seem to have very good depth and prices. KuCoin and OKX followed closely, while Phemex had the most slippage.
5. Estimating fake trading volume
We construct a model to estimate the true proportion of reported transaction volumes.
Observing that the correlation between price fluctuations and trading volume on Phemex is weak, we hypothesize that fake trades on the exchange mainly occur during periods of small price fluctuations. That is, volume during periods of large price swings is real. This is a conservative assumption used to estimate the proportion of fake volume.
As can be seen from the graph above, there are some notable discrepancies, with the estimated trading volume being completely lower than the reported trading volume, and it is estimated that the real trading volume may account for between 5% and 25% of the reported trading volume.
Summarize
Summarize
We have adopted various public data from mainstream centralized exchanges:
Trading volume on Phemex shows a different pattern than other exchanges. The sudden increase in trading volume on the Phemex platform seems interesting and not normal.
Phemex's volume-to-price candlestick correlation is seen to be significantly lower than that of any other exchange. This suggests that Phemex's trading volumes are not entirely dependent on market movements and there may be other forces driving their trading volumes.
Phemex seems to have the highest spreads and slippage among most exchanges. This should discourage some customer transactions.
Ratio analysis estimates for some of the surging volumes put the estimated volumes at around 5% to 25% of Phemex's reported volumes.
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