Are Cryptocurrency Exchanges faking volume? A report by the Blockchain Transparency Institute (BTI) claims that many exchanges are inflating trading volume.
The BTI has research that shows that wash trading occurred on over 80% of the top 25 Bitcoin pairings. Furthermore, their research has indicated that these are deliberate business practices – practices that should present significant concerns for the industry. This is not the best look for an industry looking to gain mainstream acceptance and mainstream adoption.
Called Wash Trading, this is a practice where a trader sells and then immediately buys an instrument – this practice inflates trading volume. This is also a manipulation to attempt to trick legitimate buyers and sellers into believing an instrument is more active than it is. The Federal Government has outlawed wash trading since 1936 with the Commodities Exchange Act, however, this ruling does not apply to cryptocurrencies. Yet. So as of writing this piece, this practice is not illegal. Yet.
There are many reasons why exchanges might be doing this and incorporating this in their business practices. It’s because competition is fierce amongst exchanges. They’re constantly pressured to deliver high-margin activities – and how else will they do so, especially in a slow bear market? Wash Trading allows exchanges to “produce” high volume. High volume equates to higher listing fees and perceived liquidity. These exchanges then draw traders because of the façade that they’ve provided which then stimulates actual growth.
A parody Twitter Account for Bitfinex shows this process here.
What a sorry state of affairs crypto is right now.
-Volume at record lows
-Unresolved Tether fiasco
-Governments increasingly cracking down
-Exchanges laying off employees
-FRAUD – P&D – Insider/Wash Trading
-No institutional money even though they can get in nowMOON SOON!
— Bitfinex Parody (@Bitfinex2) October 21, 2018
Being listed on an exchange is costly for a project. BTI has shown that the average product spends over $50,000 for the privilege of being listed. Many exchanges exist solely to collect these fees from projects.
We all hate this bear market. I know we do. But it’s doing good things – strong projects are emerging, bearing the storm, thriving and succeeding in this bear market. But it’s also getting rid of bad actors and bad practices, like Wash Trading. We’re starting to see life, however. Samsung and Kakao are pushing for mass adoption. What do you think? Let us know what you think on our Facebook page!
