Washtrading Rife on Crypto Exchanges, Binance Included

A new report sheds light on crypto exchanges’ malpractices.

Published by the National Bureau of Economic Research (NBER), it suggests that three out of four transactions in unregulated exchanges were fake. The practice is dubbed wash trading, a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace.

The authors of the paper used statistical and behavioral patterns to analyze the legitimacy of transactions, scrutinizing 29 unregulated exchanges between July 9th and Nov. 3rd, 2019. In particular, they analyzed data from TokenInsight, which provides ratings and industry reports as an independent third party. The focus was on four cryptocurrencies: BTC, Ethereum, Ripple, and Litecoin.

“Each transaction is fetched through the exchange’s official API (Application Programming Interface) and contains the exchange information, unique transaction ID, timestamp, price, amount of cryptocurrency traded, and trade pair symbol,” the authors clarify. 

The exchanges under scrutiny included regulated exchanges such as Bitstamp, Coinbase, Gemini; unregulated Tier-1 Binance, Bittrex, Bitfinex, HitBTC, Huobi, KuCoin, Liquid, Okex, Poloniex; and unregulated Tier-2 like Bgogo, Biki, Bitz, Coinbene, DragonEX, Lbank, MEXC, Fcoin, Exmo, Coinmex, Bibox, Bitmart, Bitmax, Coinegg, Digifinex, Gateio. 

Following an extensive analysis, the authors concluded that at some exchanges, the wash trading volume goes as high as 80% of the total trading volume due to short-term incentives since they impact the rankings of the exchanges on data and statistics websites like CoinMarketCap. 

“We consistently find anomalous trading patterns only on unregulated exchanges, with Tier-1 exchanges failing more than 20% of the tests and Tier-2 exchanges failing more than 60%. The findings remain robust in joint hypothesis tests,” the report adds. “These estimates translate into wash trading of over 4.5 trillion USD in spot markets and over 1.5 Trillion USD in derivatives markets in the first quarter of 2020 alone.”

In conclusion, the authors write that the average wash trading stands at 53.4% of trading on unregulated Tier-1 exchanges and 81.8% on Tier-2 exchanges.

The authors do not specify whether they analyzed wash trading on exchanges after 2019.

Previously, The Coinomist explained why the crypto is down despite good news.