November 12th is another date to circle on your crypto calendar. On that auspicious day, Coinmarketcap.com (CMC), the reputed standard in the crypto industry for data aggregation of coin program statistics, will institute its revised methodology for establishing rankings within the crypto industry. The shift will carry as much impact as whenever search engine advertising algorithms go through a major re-adjustment. In other words, there will be winners and losers after the deck chairs on the crypto “ship of state” are significantly rearranged.
CMC is, perhaps, the most frequently quoted source for all kinds of data related to the crypto-verse. When the site is accessed, it leads with its “Top 100” coin programs with market caps, current pricing, and 24-hour volume stats. It also notes, as of today, that there are 2,579 programs under its umbrella, constituting a market capitalization of some $269.5 billion. Volume over the past 24 hours had been $65.5 billion, and Bitcoin dominance sat at 70.4%. Data points are updated every five minutes.
As impressive as it is to aggregate such a multitude of digital data online-real-time to produce such useful information, CMC has come under a great deal of criticism for not applying some type of screening process to eliminate “fake” volume within the system. Over the past year, several crypto data analysis firms have published reports, citing serious problems with volume overstatements, due to wash trading, robot trades, and other techniques employed to iinflate volumes. Exchanges often live or die by their volume rankings, since they impact listing fee revenue and the attraction of new clients.
The Blockchain Transparency Institute was one of the first to produce definitive data evidencing the “fake” volume industry issue back in December of last year. The news headline at the time was explosive:
Over 80% Of The Top 25 BTC Pairs On Coinmarketcap Is Wash Traded.
In March of 2019, Bitwise Asset Management added its report to the mix and reviewed it with the SEC in hopes of moving forward its BTC ETF application. Its report indicated that 95% of daily Bitcoin volume is “fake” and that almost all of the “real” volume was concentrated in ten exchanges.
The management team at CMC has not been oblivious to these criticisms, but in its own words, no truly workable solutions have been proposed to fix the problem. They have spent months evaluating different approaches, but have settled upon a combination of criteria to rearrange their rankings. Their website “blog” detailed how this new process would work on a generalized basis. A new criteria that would require additional data submissions and rules compliance set the coming bar for a new “Top 200” ranking schedule. A computation would then be made using a new “liquidity metric” to arrive at reasonable rankings under the new methodology.
Per the CMC blog:
Previously, we announced an expanded methodology that detailed the requirements that were factored into the listing (and consequently, ranking) process. As part of this push in July, we introduced an internal feature that would exclude cryptoassets from being eligible to be ranked in the Top 200 if they did not meet the criteria laid out in Section 10 of our methodology. Due to the segmentation logic of this change, some cryptoassets that did not meet the criteria had harsher-than-intended rank drops. In extreme cases, a cryptoasset dropped 1000 ranks.
They also added that:
As unveiled during our first DATA roundtable, we will be releasing new metrics based on liquidity to address the current concerns around inflated volumes. We recognize the limitations of using solely volume as a metric, and will be actively working to level the playing field with liquidity-based metric.
Rankings will appear in three categories:
- The Top 200 that complied with new rules and did not have low 24-hour volume stats;
- Everyone from 200 on with a market cap; and
- Everyone else.
As for industry reaction, the folks at The Block reported this Tweet from Max Keiser, a cryptocurrency influencer:
This (CMC adjustment) will knock alts down in a big way. As market matures, statistical and manipulation games that have kept alts up – will disappear – and huge price drops will ensue. BCH and BSV are particularly vulnerable.
Wisdom says to expect strange pricing behavior before and after November 12th.