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CoinMarketCap: Did Binance-Owned Crypto Data Aggregator Manipulate Trading Volumes?

Published June 7, 2023 10:54 AM
Omar Elorfaly
Published June 7, 2023 10:54 AM

Key Takeaways

  • CoinMarketCap’s mother company Binance is in legal hot water.
  • CoinMarketCap has had its own fair share of scandals.
  • Many similarities between instances of foul play by the Binance-owned data aggregator and its mother company.

The Binance-owned crypto aggregator, CoinMarketCap has been caught in several instances of foul play,  including airdrop fraud. Now that its mother company, Binance is being sued by the U.S. Securities and Exchange Commission (SEC) for artificially inflating its trade volumes and committing other fraudulent activities, should CoinMarketCap be scrutinized further??

Binance Under Fire

Binance, the world’s biggest crypto trade by volume, peaking at over $11 billion per day, is being sued by the SEC  and Commodity Futures Trading Commission, along with its CEO Changpeng Zhao, for thirteen counts of foul play. Among the most notable accusations are commingling customer funds with corporate funds, attempting to evade US regulators, artificially inflating their trading numbers to deceive investors, and wash trading.

“Wash trading” refers to the process of repetitive selling and purchasing of the same currency by the same entities to inflate its value. Wash trading is meant to drive up the demand for certain currencies, resulting in an increase in the value of these currencies, gaining profits for their holders. 

Ironically, Binance owns CoinMarketCap, one of the most notable crypto information aggregators. Such aggregators are meant to track the activity of any desired cryptocurrency, making it easier for investors to keep track of sudden changes to their values. 

Binance is also accused of transferring customer funds to corporate bank accounts, effectively evading US regulators by departing from the US market. Binance created Binance.US to have it operate independently for the US market. However, Binance and Zhao have allegedly funneled US customer funds to offshore accounts to avoid government oversight.

“We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” said SEC Chair Gary Gensler in a statement.

Zhao and Binance insist there has been no foul play and that allegations put forth by the SEC are an attempt to create government oversight over the crypto market. In a blog post  by Binance, the company says that they “intend to defend our platform vigorously,” and that’s “because Binance is not a U.S. exchange, the SEC’s actions are limited in reach.”

Aggregator Gone Bad

CoinMarketCap, one of the most popular crypto data aggregators, touting features such as a professional data feed, and listing over 2,000 active cryptocurrencies on its platform, has faced several accusations and fraud scandals, weakening its reliability. CoinMarketCap has been riddled with scandals of faking trade volumes  and rigging airdrops  to benefit a select few entities. 

The Apple Doesn’t Fall Far From The Tree

With the recent news of Binance’s legal issues with the SEC, it’s worth noting that CoinMarketCap and its mother company shared similar patterns of providing less-than-reliable information to clients. 

To start off, both companies are accused of inflating trade volumes. In CMC’s case, numbers related to Bitcoin trading have been confirmed  to be inaccurate, which would result in an incorrect valuation of the cryptocurrency. In Binance’s case, the SEC alleges that the crypto trading platform had artificially inflated its own trading volumes to delude its investors. Moreover, Binance is accused of wash trading, which is the act of constant selling and purchasing of the same cryptocurrency by the same entities to inflate their values, coincidentally, with the same cryptocurrency, Bitcoin (BTC). 

Should the charges filed by the SEC against Binance stick, it’s important to wonder what would become of its subsidiary CMC. Would the lawsuit filed result in the cease of operations of all Binance’s operations, including its subsidiaries, such as CMC? Or, would it be a much-needed warning for the crypto data aggregator to put more emphasis on reliability and information accuracy?

What Happens To The Crypto Aggregator Market Now?

Regardless of the outcome concerning Binance and its subsidiaries, the situation should serve as a reminder that data accuracy and integrity are key to the crypto trading market. CMC is still one of the most popular crypto data aggregators. Should it cease its operations following the legal issues Binance faces, the result would be a power gap in the market, leading competitors to rush to fight over the clientele left unserved. Other aggregators are likely to hammer down on their own measures to maintain accuracy and integrity on their own platforms.