The mainstream reaction to Bitwise’s recent report showing that 95 percent of total reported bitcoin trading is fake was, predictably, to see it as further proof of the lawlessness and scammy nature of the cryptocurrency world.
But just as important as that statistic were the ones that the asset manager used to describe trading activity on the 10 “real exchanges” hosting the 5 percent that is not made up of wash trades and other manipulations.
Within its presentation seeking approval from the Securities and Exchange Commission for a bitcoin-based exchange-traded fund (ETF), Bitwise included one slide with a screenshot from Coinbase Pro showing a mere 0.0003 percent bid/offer price spread and stated that it had to be “among the tightest quoted spread of any financial instrument in the world.”
This supports one the key arguments in favor of cryptocurrencies: that by cutting out the many financial intermediaries needed to execute trades in the traditional financial system, this technology achieves impressive efficiency and cost reduction for market participants.
More than merely a critique of the price manipulation rife across bitcoin markets, then, the Bitwise report is a demonstration of cryptocurrencies’ great potential.
Ironically, it also convincingly makes the point that to achieve that potential, there needs to be greater regulation of crypto trading.