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Bitwise Mar 22
1/ New Research from us . As part of 226 slides presented to the SEC on our ETF filing, we did a first-of-its-kind analysis of *order book data* from all 81 exchanges reporting >$1M in BTC volume on CMC. TLDR: 95% of reported volume is fake but LOTS of good news!
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Bitwise Mar 22
Replying to @BitwiseInvest
2/ First, key takeaways: A. 95% of reported BTC spot volume is fake B. Likely motive is listing fees (can be $1-3M) C. Real daily spot volume is ~$270M D. 10 exchanges make up almost all real trading E. Most of the 10 are regulated F. Spreads are <0.10%. Arb is super efficient
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Bitwise Mar 22
Replying to @paulvigna
3/ And three links: 1. Full 226-slide presentation to the SEC: 2. 's writeup in the Wall Street Journal: 3. The total real daily BTC trade volume: Now, a thread w/ highlights from the analysis.
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Bitwise Mar 22
Replying to @binance @bitfinex and 9 others
5/ Only 10 exchanges have >$1M real daily bitcoin trade volume. , , , , , , , , , / You can see the daily BTC trade volume on these exchanges at:
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Bitwise Mar 22
Replying to @BitwiseInvest
6/ How can you tell what's real vs fake? Here are two data driven tests (more available in the presentation). The first test: real exchanges have more trades of small amounts than of large amounts (with spikes on round numbers like 1.0 BTC, a behavioral preference).
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Bitwise Mar 22
Replying to @BitwiseInvest
7/ Fake exchanges have entirely artificial trade size histograms.
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Bitwise Mar 22
Replying to @BitwiseInvest
8/ Second test: real exchanges have volume spikes that align perfectly (literally on the same hour) because they're all part of the same market.
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Bitwise Mar 22
Replying to @BitwiseInvest
9/ Fake exchange have volumes that have no such resemblance and don't correspond with broader market. More examples in the full analysis available on
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Bitwise Mar 22
Replying to @BitwiseInvest
10/ When you remove fake volume, the real BTC volume is quite healthy given its mkt cap. Gold’s market cap is ~$7T with a spot volume of ~$37B implying a 0.53% daily turnover. Bitcoin’s $70B market cap would imply a 0.39% daily turnover, very much in-line with that of gold.
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Bitwise Mar 22
Replying to @BitwiseInvest
11/ Good news time! Arbitrage between the 10 real exchanges has improved significantly. The avg price deviation of any one exchange from the aggregate price is now less than 0.10%! Well below the arbitrage band considering exchange-level fees (0.10-0.30%) & hedging costs.
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Bitwise Mar 22
Replying to @BitwiseInvest
12/ Here's price deviation broken out for each of the 10 exchanges with real volume. The band is extremely tight, which is good.
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Bitwise Mar 22
Replying to @BitwiseInvest
13/ Here's another chart showing the tight pricing amongst these 10 exchanges. There is one global, unified price.
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Bitwise Mar 22
Replying to @BitwiseInvest
14/ Other good news when you focus in on the exchanges with real volume: 9 of the 10 are regulated by FinCEN as Money Service Businesses and 5 of the 10 by NYDFS under the BitLicense.
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Bitwise Mar 22
Replying to @BitwiseInvest
15/ Neither of these designations — MSB or BitLicense—compares to that of a securities or futures exchange, but they do have meaningful obligations.
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Bitwise Mar 22
Replying to @BitwiseInvest
16/ Additionally, 5 out of the 10 exchanges have implemented sophisticated market surveillance tools to prevent market manipulation and bad behavior.
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Bitwise Mar 22
Replying to @BitwiseInvest
17/ And, when you remove fake volume, CME and CBOE futures volume is significant ($91M), especially compared to the real spot volume (35% for Feb 2019). This is good news because it means CME— a regulated, surveilled market— is of material size, which important for an ETF.
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Bitwise Mar 22
Replying to @BitwiseInvest
18/ Given this, the Bitwise Bitcoin ETF Trust will calculate its daily NAV off of the 10 exchanges above. The exact methodology largely mirrors the settlement pricing methodology of CME futures, which we believe has the correct construction.
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Bitwise Mar 22
Replying to @BitwiseInvest
19/ You can read more about our filing or the report at the links above. To summarize: The bitcoin market is smaller, but more efficient and regulated, than reported, mitigating concerns around market manipulation.
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Bitwise Mar 22
Replying to @BitwiseInvest
20/ We hugely appreciate the SEC being careful with their review of bitcoin ETFs & digging into the detail. Leveraged ETFs took 6 years for approval. Actively managed ETFs nearly 6 years as well. The 5+ year bitcoin journey is not atypical. It's necessary for investor protection.
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