Bitcoin sector plagued by wash trading — report

Key Takeaways:

  • Reports indicate that Bitcoin’s daily trade volume is greatly wash trading.
  • The US banned 'Wash Trading' in 1936.
  • All is not lost – reputable crypto exchanges remain trustworthy.
Bitcoin sector plagued by wash trading — report
Bitcoin sector plagued by wash trading — report

WISCONSIN (CoinChapter.com) — A few weeks ago, Forbes published a story that strikingly called the crypto world to take notice. Its correspondent Javier Paz reported that 51% of Bitcoin’s daily trading volumes are “bogus.”

The article says that the fake trades are due to “Wash Trading.” In other words, traders inflate Bitcoin’s trading volumes to give a fake impression about its popularity as a financial asset. They typically employ trading bots to execute these wash trades.

“Wash trading also benefits exchanges by allowing them to appear to have more volume than they actually do, potentially encouraging more legitimate trading,”

he added.

Wash Trading Banned On Regulated Exchanges

Wash Trading was disallowed on regulated exchanges in the United States in 1936.

It is a strategy wherein one places both a buy and sell trade at the same time. This method does a couple of things. For one, it puts the wash trader in a no loss situation because although one trade is losing, the other is winning. The end result is as the term says, a wash.

The benefit for the wash trader is that it gives markets an impression, in this case Bitcoin, that phenomenal trading volumes are taking place and “everyone” is in it. That type of trading can influence people who are interested in buying Bitcoin.

The wash trader is savvy and aware of this; they have their “buy” trades ready and active.

There are reported cases of crypto wash trading on over 150 exchanges. The worst offender from our research was crypto exchange Coinbit. Between August of 2019 to May of 2020, they were found to have 99% fake transactions. The South Korean exchange was seized by police.

Merkle Science analyzed actual numbers from Coinbit, which resulted in a determination of manipulative trading tactics:

Merkle Science analysis of Coinbit’s wash trading. Courtesy of Merkle Science
Merkle Science analysis of Coinbit’s wash trading. Courtesy of Merkle Science

Bluesky Capital Management has a story that really details the practice from a scientific perspective. The article dissects this subject like the shape of a cell on a microscope! It is an interesting read if you have the time.

Daily BTC deposit and withdrawal volume
Daily BTC deposit and withdrawal volume

Manipulating Technical Traders

Technical traders use trading volume in their “tool box” to assist in understanding market interest. When traders see volume go up, they jump on board hoping to earn profits. Ultimately, the analysis gets thrown off when there are no real valid reasons behind the curtain of fake trading volumes.

Reputable Crypto Exchanges Give Traders Best Advantage

Choosing both the most established cryptocurrencies and brokers has been proven as the best protection for investors.

Established brokers want to stay in business; they know full-well seasoned investors understand from experience when things are off. The combination of highly traded cryptos such as Bitcoin and Ethereum, blended with a long-time broker make price manipulation difficult.

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