CoinMarketCap adds a new Liquidity Metric

CoinMarketCap adds a new Liquidity Metric
Written by:
Ali Raza
12th November 2019
Updated: 11th March 2020
  • Recent complaints in the crypto industry regarding the practices of wash trading have inspired CoinMarketCap to come with a solution that will reveal whether there is truth to these reports.
  • The crypto tracking site has added a new metric, simply called 'Liquidity.'
  • The metric will take into account a number of aspects from each exchange, and it will rank them, coins, and trading pairs according to the score based on these aspects.

For quite some time, the crypto space has seen numerous reports and complaints about widespread wash trading. If true, this would be an unhealthy kind of behavior that would impact the crypto industry quite negatively in the long run. However, the answer will soon be obvious to everyone, thanks to CoinMarketCap.

CoinMarketCap to address recent complaints

According to recent information, this crypto-tracking website has recently revealed a new metric named simply ‘Liquidity.’ As the name suggests, the new metric will show liquidity while replacing daily volume as the default for rankings, and put the question of wash trading to bed once and for all.

The new change was announced at the Singapore-based ‘The Capital’ conference, CoinMarketCap’s plan is to take a number of variables into account directly from various exchanges’ order books. The variables in question will include several things, including the relative liquidity of trading pairs, the orders’ distance from mid-price, as well as their sizes.

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The methodology will allow traders to get greater insight into trading trends at any given time. And, since they are very difficult to fake, the chances are that those who were uncertain of what the truth is will finally get their answer.

How is the solution being implemented

CoinMarketCap also revealed how exactly is the new metric going to appear on the platform, stating that it will arrive through three different phases. The first phase will be applying it in a way that will influence the ranking of various trading pairs. The second one will do the same for cryptocurrency exchanges, while the third and final one, will do the same for actual coins.

As mentioned, the move comes as a consequence of constant reports regarding alleged wash trading. Some reports, such as the one by Bitwise, indicate that around 95% of the reported volume could be a consequence of wash trading. It will also show which exchanges have taken proper precautions to prevent it. So far, those who have the most scored the worst include CoinEx, CoinBene, as well as MXC.

Meanwhile, more legitimate services, such as Huobi, Binance, and Coinbase, will receive higher scores.

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