A new analysis has found that up to 70% of cryptocurrency trades on the world’s most popular exchanges may be people buying from themselves. It is a form of market manipulation on unregulated crypto exchanges to inflate prices artificially.
A study of 29 cryptocurrency exchanges – including Coinbase, Gemini, Binance, Bittrex, Huobi, and many others – undertaken between July and November 2019 has found significant volumes of “wash trading” within crypto assets. Wash trading is where an investor sells and buys the same asset to create artificial interest in an investment, often distorting its market value.
As New Scientist reported, Lin William Cong of Cornell University, Xi Li of the University of Newcastle, and Ke Tang and Yang Yang of Tsinghua University said they ran “systematic tests exploiting robust statistical and behavioral patterns in trading to detect fake transactions.”
Regulated exchanges feature patterns consistently observed in financial markets and nature, but the researchers found “abnormal first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges.”
That showed “rampant manipulations” unlikely to be driven by strategy or exchange heterogeneity, they concluded.
Experts quantified the “wash trading” on each unregulated exchange, which averaged over 70% of the reported volume.
They found that the fabricated volumes amounting to trillions of dollars annually improve exchange ranking and temporarily distort prices.
The authors noted that several ranking websites changed their matrices from purely volume-based to more sophisticated multi-dimensional ranking models, with at least one website doing so in response to the research.