A new study of cryptocurrency exchanges indicates that nearly 80% of transactions are associated with laundered trading activity – a form of manipulation performed to artificially increase the volume of an asset to make it appear that it is being traded more than it actually is.
Manipulation in the cryptocurrency industry is addressed in a research report titled “Cryptocurrency Trading” published by the National Bureau of Economic Research (NBER).
The organization analyzed data from 29 cryptocurrency exchanges and found that laundered trading accounts for more than 70% of the volume of these exchanges.
The study focused on brokers ranked among the largest in the world, as reported by data-tracking website LikeWeb.com. The researchers also focused on four of the most popular and widely traded cryptocurrencies – Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Ripple (XRP).
Vertically integrated centralized exchanges, when unregulated, and fake, can, on average, add more than 70% of reported volume to improve rankings and attract users, from Lin William Cong, Xi Li, Ke Tang, and Yang Yang https://t .co/cgwBbScOgf pic.twitter.com/wZQmwRqrSc
– NBER (nberpubs) December 28, 2022
The researchers behind the report, Lin William Kong, Shi Lei, Qi Tang, and Yang Yang, reveal Gross manipulation of trading volumes on unregulated platforms.
According to the report’s findings, top-tier exchanges, and those with the longest market presence and global user bases, were the least likely to engage in laundering trading. However, the less well-known second-tier exchanges seem to perform most of the fake volume behavior, as statistics show that an average of 70% of the volume on these exchanges was related to trading laundering.
The study reveals that Almost three out of four transactions are bogus Unregulated brokerage firms. Researchers even suggest that this volume of fake trades can sometimes exceed the 80% mark (four trades out of five) for the platforms.Second Level “.
Analysts said that on the second-tier exchanges they analyzed, fraudulent trades accounted for nearly 80% of the total trading volume. According to experts, the wash trading volume in the first quarter of the year amounted to more than 4.5 trillion US dollars in the spot markets and 1.5 trillion US dollars in the derivatives markets.
Experts believe that there is a short-term benefit from such transactions – an increase in the ranking of exchanges on data and statistics sites, as well as in the cost of digital currencies.
The study was published in the context of the FTX scandal. As trust in centralized and licensed venues declined sharply following the bankruptcy of the third largest cryptocurrency exchange, users have turned their attention to decentralized venues.
Washing trading is a process in which a trader buys and sells an asset to create misleading information. The false volume of this asset can lead investors to believe that the trading volumes are larger than the reality and may even increase the real volume as legitimate money enters the market.
According to the report, $4.5 trillion was injected into the spot markets as a result of trading laundering in the first quarter of 2020 alone.
About who is likely to engage in the illegal practice, the researchers wrote:
“It is very likely that the wash trade will be executed using automated programs or bots, given the efficiency and number of trade orders required. Strong evidence indicates that most trades are done by bots, which can be easily added to the trading framework using simple Python scripts “.