Trader Sylvain Ribes discovered, after research at the beginning of the month into small digital currencies, that the trading volume of OKEx, the fourth largest digital currency trading platform, was overestimated.
Pumped volume of crypto exchanges
Using a method called slippage, which consists of examining the liquidity of assets for different stock exchanges when selling $50,000 worth of tokens, Ribes tested order books for each crypto currency pair under analysis.
The analyst personally sold $50,000 worth of tokens and tested their liquidity on four different exchanges: OKEx, Bitfinex, GDAX, and Kraken.
OKEx was even ahead of Binance in March 2018 before the introduction of the new restrictive law in China, but is also considered to be in the top four. The remaining three are regulated exchanges for the exchange of cryptocurrencies into fiat currencies.
According to the analyst, Kraken and GDAX recorded the lowest slippage, which means that they can easily handle large transactions from $50,000 to $100,000. However, on OKEx this indicator was much higher, and it is allegedly one of the largest exchanges.
Volume of crypto stock exchanges – with high slippage it is possible to manipulate
When comparing large trades, slippage was only about 0.1% on GDAX, but on OKEx huge slippage occurred, associated with a drop in cryptocurrencies when the order book became unstable.
Ribes on the blog showed that the volume of crypto exchanges and not only OKEx is overstated, and a small number of sell orders can manipulate token prices and order books. Additionally, Ribes did not present slippages above 4%.
Mt. Gox together with other factors influencing the BTC price
In March 2018, cryptocurrencies analysts showed that the sale of hundreds of millions of dollars in bitcoins, which was conducted by Mt. Gox, led to a drop in the price of BTC to 8300 dollars. BTC was sold by bankruptcy receiver Mt. Gox on public platforms instead of over-the-counter, which resulted in panic.
In addition, other factors, such as the public hearing on the ICO, the negative attitude towards crypto by experts in traditional currencies and uncertain news from Japan, overlapped the falls. This, together with the lack of dynamism, led to large drops in the BTC.
Easy falsification of stock market volume
On markets with low liquidity and where the volume of exchanges is overstated, it is easy to manipulate small cryptocurrencies prices. When large currencies are affected by many factors, including the global market, according to Ribes’s research, in case of small currencies it can be achieved with the capital from 50 000 to 100 000 dollars.
Ribes added that also tokens with bigger volumes, i.e. over USD 3 billion, in case of pairs with low liquidity may have slippage exceeding 10% when selling at USD 50,000.
Other voices and summary
Binance’s CEO, Changpeng Zhao, praised Ribes’s research, calling it a good in-depth analysis.
Ribes’s research shows that the crypto industry is susceptible to fraud, and the volume of stock exchanges is sometimes stretched and such irregularities need to be revealed. All the more so because this industry is still at an early stage of development, and the liquidity on the markets is not as it can be seen from the facts.