For beginners, choosing a crypto exchange can either make trading easy or difficult. There is, nevertheless, a minor possibility that you will encounter a shady cryptocurrency exchange given the abundance of possibilities because there are hundreds of them available.
Numerous recent studies have shown that the problem of cryptocurrency exchanges fabricating trading volumes is still present. Since Bitwise Asset Management issued a report demonstrating that 95% of the volumes reported by Bitcoin Exchanges on data aggregator CoinMarketCap were false, the issue has become clear.
The exchanges informed CMC of the fictitious volumes in order to inflate the size of the Bitcoin market. Before that, in 2018, investor and trader Sylvain Robes showed that 93% of the trading activity on the Chinese exchange OKEx was faked based on the "slippage," or price shift when a sale of $50,000 worth of cryptocurrencies was made.
One of the biggest trading platforms in the world, Binance, has comparable "slippage," which denotes comparable levels of the fictitious trading volume. A recent Coindesk article highlighted a Russian college student who has founded a business that, in essence, aids exchanges in fabricating their trading volumes by setting up accounts manned by automated trading programs that engage in continuous trading among themselves.
Why create false trading volume? Increased trade volume has two effects. First, they assist prevent sharp price swings after large sales, which stabilizes the cryptocurrency market.
Two, trading volumes should show whether a cryptocurrency exchange is reliable. When many people trade on an exchange, both the exchange and the commodity being traded are viewed as being more reliable.
It also goes without saying that fraudulent cryptocurrency exchanges have small user bases, occasional asset trading, and a limited volume of orders. When there are no buyers or sellers of cryptocurrencies, your only options are to sell for a significantly lower price or to buy for an absurdly high price.
1, exercise caution when it comes to trading volume and liquidity. 2, confirm deposit and withdrawal limits. 3, keep an eye on fees (crypto exchanges wouldn't exist without fees). 4, check their customer support. 5, conduct a background check. 6, determine whether they are insured. 7, learn about their security procedures.
Conclusion
Not every cryptocurrency exchange that charges higher fees or lists dubious coins is definitely a scam, but if you come across one that checks all of the (negative) boxes we've listed, you'd better avoid it.
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