Binance spark wash trading bonanza but it’s all part of their plan

The crypto bear market is in full swing.

Bitcoin has dipped below the level of its previous bull market high in 2017.

NFTs have been crushed – the collection that was supposedly “blue-chip”, the Bored Ape Yacht Club, shed 75% of its value in the space of 7 weeks. It’s almost as if people realised that in a suddenly risk-off environment, cartoon monkeys do not yet qualify as a safe haven asset.

Elsewhere, the world’s vocabulary expanded as we all learned the meaning of a new phrase – “death spiral” – after the spectacular UST collapse wiped bank accounts, college savings and more in a devastating blow to the industry. Personally, it was the saddest episode I have witnessed in my years in crypto, given so many invested believing it was a stablecoin, rather than one of those “unstable” stablecoins that are suddenly so fashionable.

In truth, the high-beta industry has done what high-beta industries always do in dire macro situations – followed the stock market down, only a lot more violently. This should not be surprising, as I wrote about last week.

A Flourish chart

Stock market nets together a winning streak

Last week, however, brought slightly better news. The S&P 500 was floating along quite nicely, clocking four straight days of gains in the lead-up to the all-important Friday jobs report. After this report came in well above expectations  – 372,000 compared to 250,000 forecasted – the market…kind of lulled and even closed down 0.1%.

It’s a strange one. However, markets seemingly were impressed with the numbers but hesitant to show too much glee given better macro numbers mean a lower chance of recession. And a lower chance of recession, of course, means Jerome Powell is perhaps more likely to raise those pivotal interest rates. So good news sends stocks down, and bad news sends them up?

It’s a funny world we live in, and being an investor currently reminds me of my ill-fated support of a struggling football team (Newcastle) over the last two decades. I always wanted my favourite players to do well, but not too well, otherwise they’d get signed by better clubs (looking at you, Yohan Cabaye).

What exactly am I then hoping for? I don’t really know, which is exactly how investor sentiment was Friday.

Cryptocurrency Rebound?

Anyhow, let’s move on from tangential footballing analogies to Bitcoin. As mentioned above, the macro is all that really matters at the moment. I’ve written umpteen pieces recently about death spirals, contagion and the other idiosyncrasies that have reverberated through the crypto markets (what’s a guy got to do to get some good news around here?), but with no large-scale happenings for a couple of weeks now, it’s back to being macro controlled.

But as I stumbled out of bed this morning and sipped on my wake-me-up smoothie (I would highly recommend – although I added too many frozen berries into this edition which was very upsetting), I pulled up my phone to see my inbox was stacked full of newsletters and stories about Binance setting record high volumes following their decision to remove fees on Bitcoin trading.

This confused me.

Binance already offered among the lowest rates in the business at a 0.1% fee (with a further 25% discount if one pays in native token BNB), and yet a 100 bps cut is causing volume to explode? I’d be sceptical that even the great Jerome Powell could cause this much movement with a 100bps cut, and that man single-handedly controls the universe, it seems. (Underlying data for below graphs provided by the excellent Kaiko).

A Flourish chart

Moving your cursor to the very right on the above graph, you will see the spike in volume immediately on Friday, jumping to $11 billion daily figure. That is second only to the monstrous $14 billion on 19^th May 2021, a month burned in every crypto investor’s memory given Bitcoin opened at $57,000 and closed at $37,000.

But comparatively speaking, Friday’s spike came amid relatively tranquil market conditions, with nothing really happening outside of Elon Musk pulling the plug on a $44 billion transaction (what’s new?).  Yet evidence seemed to support the claims that the zero-fee change had encouraged a surge in volume. This was further backed up when flipping the USD denominator from the previous graph to Bitcoin.

A Flourish chart

For a longer time horizon of the volume trends going all the way back to Binance’s founding, hit “Play Timeline” in the top left of the below graph. And yeah, this isn’t something I thought I would be saying anytime soon, but we have an all-time high. In terms of Bitcoin, Binance had its highest ever daily volume traded on July 8^th and it wasn’t particularly close.

A Flourish chart

Thinking my computer was acting up when I saw Bitcoin trading hit all-time highs, I then plotted the same graph but included Ethereum to see if I could catch any pattern. As you’ll see below, there has been a near-exact relationship between BTC and ETH volume historically. The major exception to this is – you guessed it – last Friday. When you move your cursor to the right of the graph and look at Friday, when volume in BTC went vertical as mentioned above, ETH volume remained largely stagnant.  

For those of you who prefer statistics than looking at pretty pictures, the correlation since the start of 2020 has been a pretty staggering 0.87, so Friday was definitely an outlier. I actually compiled my own hypothesis test here to conclude that the result was statistically significant even at the 99% confidence interval, before realising I was just being a loser and it’s been a while since I got to practice my statistics. A look at the graph below is all you need to see the relationship and divergence on Friday.