Can Crypto Cold Wallets Help Measure Exchange Dominance?
Crypto exchanges have come under fire recently for allegedly fabricating volume figures. It is an easy thing to do so researchers are looking at other ways to measure dominance, and cold wallets could be one.
There are a number of differing ways to rank crypto exchanges and daily volume appears to be one of the most popular. Leading analytics platforms such as Coinmarketcap now offer three metrics for exchange volume; adjusted, reported and liquidity.
Yesterday, Bitcoinist reported on the latest monthly crypto exchange review from analytics firm Crypto Compare. The top exchanges in terms of volume were not what we would expect and there is very little transparency for these results.
Today, for example, an obscure Republic of Seychelles registered exchange called Bilaxy is topping the CMC charts for reported daily volume which it claims is over $2 billion.
Can Crypto Cold Wallets Help?
Research has been undertaken by Longhash into whether cold wallets can give us a better indication of exchange rankings and dominance.
The study analyzed cold wallet addresses associated with major exchanges and their holdings using info from chain.info. Because the data comes from analysis of on-chain asset transfers, it would be quite difficult to fake, unlike exchange trading volumes.
The research looked at Coinbase first since it has the largest bitcoin holdings which grew steadily last year despite the market volatility. The exchange attracts a larger portion of long-term investors rather than day traders.
The chart above shows that Binance has been dominant over the past year as expected. Bitfinex started the year in third, but its holdings drained during the first quarter, and recovered near the end of the year.
Huobi has shown the largest growth in bitcoin holdings over the year jumping from fifth to top. The rest have been relatively flat.
In conclusion, as expected, Coinbase, Binance and Huobi dominate in terms of cold wallet storage.
Exchange Token Prices
The research then took a look at exchange crypto token prices and whether there is a correlation to cold wallet storage.
The first quarter of 2019 was positive for all exchange tokens but only OKEx and Huobi ended the year positively. The report concluded that there was some correlation in exchange token prices and cold wallet holdings but it is not conclusive.
While cold wallet storage is not the perfect metric for assessing crypto exchanges, it is an interesting data point that may offer hints at exchanges’ user numbers, trading volumes, and revenues
It would be pertinent to suggest that this metric is likely to be more accurate than reported volumes which often throw up some completely unknown exchanges.
Is cold wallet storage a good way to measure exchange performance? Add your comments below.
Images via Shutterstock, Chart by LongHash