April 18, 2019
Although Bitwise does a better job of explaining bitcoin than other bitcoin ETF proponents, there does seem to be some question as to if their analysis of bitcoin volume is correct.
They make a good case that a lot of claimed volume on bitcoin exchanges is faked or padded. However they seem to overreach. If they are to be believed of the 81 largest bitcoin exchanges, 71 of them fake 100% of their volume and 10 have 100% real volume. Nobody has a mixture of the two. This seems unlikely. It seems far more likely that some of the exchanges are faking all their volume, some are faking some of their volume, and some are faking none of their volume. However that would mean that Bitwise's claim that there is only $273 in ADV is unlikely to be true. The "true" number is certainly higher.
In addition Bitwise suggests that virtually all trading occurs on non-Asian exchanges, which does raise the issue of where exactly do Asian investors go to buy and sell bitcoin? It seems unlikely they would use US or EU based exchanges and face their AML/KYC rules.
Of course their analysis also requires you to believe that Binance is actually a EU-based Maltese company. Not so sure about that claim.
Finally Bitwise ignores both the trading that occurs on the Hong Kong-based crypto derivative exchange Bitmex as well as what occurs OTC. A previous ETF filer has claimed that OTC volume just with US-based brokers is $500 mil a day. Even if that is overstated it does suggest that global ADV in bitcoin is a lot more than $273 mil.
Bitwise may very well be right that global trading in bitcoin is a lot less than $6 bil a day. However they still need to provide the SEC with a more complete accounting of the real volume out there, and not just the volume in their hand selected exchanges, if they want to move forward.
Although it will not be easy to come up with a more complete estimate of actual bitcoin volume given the nature of cryptocurrencies, I am not sure that the SEC needs a perfect answer. However the Bitwise material, although a vast improvement on what has been seen before, is still not refined enough. There are ways to come up with better estimates and the SEC should defer action until better estimates are produced by Bitwise or somebody else.