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There has been a lot of talk concerning the reliability of the CoinMarketCap platform, all pointing out its data vulnerabilities. According to various articles, the crypto website reports on fake volumes, comprising the top 25 exchanges among the 260 listed ones. More than 75% of these exchanges expose similar data vulnerabilities that make it hard to trust the platform. Also, Forbes reveals the analysis of major research reports that conclude fake crypto trading volume of about 65% to 95%.
Regarding the concerns raised by the Bitwise report in March 2019, CoinMarketCap’s response to the matter was tweeting, acknowledging the fake volume reports. One tweet quoted, “We’re working hard to build constructive solutions to address volume concerns. We look forward to more suggestions as we build out tools for our users.”
Forbes estimates that the company’s annual revenue is between $20 million to $30 million, with a 40- person team with expert analysts. CoinMarketCap’s CEO Brandon Chez talks about clearing the issues with the fake volume reports, and he says, “It is an important issue, and we’re actively trying to solve it.”
Why You Shouldn’t Trust the Platform
There are significant reasons why trusting CoinMarketCap in trading cryptocurrencies is a risk you shouldn’t take. They majorly revolve around data inaccuracy and its general acceptability in trading popular digital assets. Keeping this in mind, the two reasons you should steer away from working with CoinMarketCap include:
Fake Volume Reports
The Bitwise blockbuster report released weeks after the BKEX Forbes report elaborates on issues concerning transaction replication. With tried efforts, the company did very little to solve the problem. Later on, in May 2019, the company ventured into the Data Accountability and Transparency Alliance (DATA). Its main goal was to promote data transparency and accountability. Regardless, several exchanges still showed fake volumes, and such included Bitrue and CoinSuper.
Also, the website added an “adjusted volume” column on its rankings. Despite this effort, the volumes indicated in the column were similar to those in the “reported volume.” Bitwise showed its suspicious concerns about the exchange volumes that the Alameda Research also reflected. According to Nick Carter, a partner at a crypto investment fund, his view on the clean-up efforts by CoinMarketCap was somewhat unrealistic. His comment on the fake volume reports was, “It’s like trying to put out a fire, a blazing house fire, by pouring a small cup of water on it.”
In response to the fake volume reports, Carylyne Chan, CoinMarketCap’s chief strategy officer, explains that the teams’ major efforts are focused on fixing the issue correctly rather than quickly.
Exchange Price Differences
According to Bitwise, there are differences presented in the exchange prices of various cryptocurrencies. However, it is fortunate that the actual Bitcoin exchange price and the ones listed in CoinMarketCap have minimal differences. Regardless, this presents an issue to the users where misleading prices might cause poor investment decisions that are risky in the long run. The company’s response to these exchange differences created significant effects. This was due to the refusal to tackle the issue due to few reports of similar challenges, especially for unpopular tokens listed on the platform.
The adverse effects of CoinMarketCap’s dismissal to tackle the price exchange differences include publishing fake volumes. Exchanges publishing fake volumes do this to increase their rankings. Despite exposing this issue, the only way to curb the exchange differences is by data-aggregators demanding the same numbers given to regulators by the exchanges. An example of this is in a Coindesk article that explains one user specializing in making tokens appear to be trading actively for non-popular tokens. He charges for a month of fake volume trading and listing of tokens into CoinMarketCap. As such, most users fall victims to similar scams and hacks. In the long run, investors become less interested in crypto investing.
Binance Acquisition of CMC
In late March 2020, the largest cryptocurrency exchange volume proven by market volume, Binance, announced its plans to acquire the CoinMarketCap platform. Binance’s CEO, Changpeng Zhao, explained the opportunity as the largest purchase made with an estimate of about $400 million in the purchase. With this acquisition backed by a leading crypto exchange, many doubts raised pointed out CMC’s data accuracy vulnerabilities. Of course, this would be an issue, and to get ahead of it, the CEO, Zhao, explains that CMC will remain independent. In his words, “Binance has no bearing on CoinMarketCap rankings. CoinMarketCap stays committed to providing the most accurate, timely, and quality cryptocurrency data in the industry while benefiting from Binance’s expertise, resources, and scale.”
Regardless of his comments, six weeks later, CMC’s actions proved otherwise. After the acquisition, CoinMarketCap introduced an updated ranking formula that ‘coincidentally’ put Binance as the top exchange in the list. Moreover, this was not the only change that took place. One was the elimination of an indicator installed in mid-year 2018 primarily to weed out suspicious data. The addition of web traffic was another change made in the CMC platform after its acquisition by Binance, although CMC’s CEO confirmed it was “not a good indicator.” The result of all these changes is evident in proving CMC, once considered the most trusted platform in publishing exchange volumes, is now compromised. Combining the largest crypto exchange platform with the leading source of cryptocurrency data raises many opportunities as much as concerns. Binance now handles all data collected by CMC, and this gives them access to surveillance aptitude.
In simpler terms, the CoinMarketCap platform has become a marketing tool for Binance. For this reason, data published by CMC proves to be unreliable since it favors Binance as an exchange platform.
For these reasons, should you trust CoinMarketCap as a source of crypto data, treat the information acquired with much skepticism.
Effects of These Challenges
The first effect of these challenges experienced in CoinMarketCap is how new and inexperienced users fall prey to the misleading publications posted on the website. In pursuing new crypto investment opportunities with fake volumes and different exchange prices from actual prices, it may apply poor strategies in investing in digital assets.
Another effect is hacking and scamming presented by the fake volumes and exchange prices. Investors are constantly seeking the most valuable and ranked exchanges, and as such, misleading information presented in CoinMarketCap makes them victims of scams. All this is possible after buying or selling cryptos for different exchanges on the platform. Well, if you are a retail investor interested in using CoinMarketCap, you should be aware of the data inaccuracies presented in the platform. To make profitable strategies, you should view the company’s data with much cynicism.
Here is a clear example of people being victims of CoinMarketCap’s exchange frauds and the ICO scams advertised through the website. The Bitstraders was the fraudulent initial coin offering that duped one CoinMarketCap user of $230,000, although the founder was arrested. With most of its profits realized in the company are from ads, such cyber crimes are eminent.
The world’s biggest cryptocurrency and Bitcoin exchange platform, Binance, announced its intended acquisition of the CoinMarketCap data site and raised concerns. From this announcement, you can see much resentment towards the company due to its data inaccuracies.
If you are a newbie in the crypto world, various alternatives to choose from the CoinMarketCap website will commence with your cryptocurrency investments. These include CoinGecko and LiveCoinWatch. They provide better features and can assist you in making better investment strategies since they are much more accurate. Acknowledgment of the flaws in CoinMarketCap proves it is less trustworthy since these issues haven’t been solved yet.