Algorithms Detect Wash Trading Across 95% of Crypto Exchanges

“An enormous amount of data” collected by the Blockchain Transparency Institute (BTI) in its December 2018 Exchange Volumes Report shows, “clear evidence of wash trading,” across 80% of bitcoin-altcoin pairs on 95% of exchanges:

“Based on this data over 80% of the CMC (CoinMarketCap) top 25 BTC pairs volume is wash traded. These exchanges continue to use these strategies as a business model to steal money from aspiring token projects.”

In the last sentence, the BTI, “a group of blockchain data researchers and enthusiasts looking to bring more transparency and trust to the crypto sphere,” refers to the widespread practice of cryptocurrency exchanges charging projects often hefty fees to list.

If an exchange charges a project $100 000 or more to list, but then facilitates, executes or does nothing to stop the manipulation of rival currencies, they are undermining small projects they have charged.

According to the BTI:

“Based on information we’ve received from many tokens in the space, the average project spent over $50,000 this year in listing fees from exchanges on our Advisory List. This adds up to an estimated $100,000,000 stolen in 2018 from the crypto ecosystem…and with over 50 exchanges wash trading over 95% of their volumes, this is a 500K a year scheme, with some exchanges making over one million dollars this year just from collecting these fees.”

The BTI says it has spent countless hours observing the phenomenon of wash trading:

“We have spent countless hours watching order books, analyzing volume data points, and speaking with market makers, high frequency traders, and trade surveillance consultants.”

Much of the wash trading, says the BTI, is automated:

“Also coming out of this data, we have discovered 4 different bot strategies which are used to inflate exchange volume numbers. Some of these bots appear to be set to different trading pairs depending on the time of day.  Settings are changed based on current volume trends or hype around a given token for that time period.”

While the BTI says it has been able to “reverse engineer” some of the settings on these bots, “we cannot make the exact data we used to determine these settings public, so that we can stay ahead of these bad actors.”

Grossly overstated reported trade volume numbers provided by crypto exchanges have long been a problem in the crypto sphere, a phenomenon that prompted CoinMarketCap (the Internet’s most popular provider of cryptocurrency exchange and price data) this year to start providing two metrics for rating volume on exchanges: “reported”volume” and “adjusted volume.”

Still, when it comes to individual coins tracked at CMC, the differences between the reported and actual volume metrics found by the Blockchain Transparency Institute are far worse:

“Included in this report we have calculated the true volume of the CMC top 25 BTC trading pairs. Most of these pairs actual volume is under 1% of their reported volume on CMC.”

BTI found that only 12% of the top 25 coins on CoinMarketCap are not being significantly wash traded:

“We noted only 3 out of the top 25 pairs not to be grossly wash trading their volume, Binance, Bitfinex (exchange coins) and Liquid (the crypto token native to Blockstream’s Liquid network).”

Among the worst-offending exchanges for enabling or perhaps engaging themselves in wash trading (three employees at South Korea’s top crypto exchange, Upbit, were indicted last week for billions in wash trading) are the South Korean exchange Bithumb, and the China-founded and now relocated exchanges OKex and Huobi:

“OKEx has been moved to our Exchange Advisory List as we found just about all of their top 30 traded tokens to be engaging in wash trading when processed through our algorithms.”

“Huobi was also found to be wash trading many of their top 25 pairs volume numbers, but to a lesser degree than OKEx.”

“We checked into Bithumb after numerous reports and found a large amount of wash trading primarily with Monero, Dash, Bitcoin Gold, and ZCash. Top wash traded tokens on Bithumb appear to change depending on the month.”

The BTI recommends that token projects contact them before paying fees to the exchanges it accuses of wash trading:

“We advise any token project to contact us regarding any exchange requesting large listing fees, especially those on our Advisory List.  Many of these exchanges exist solely to collect these fees while their bots run their exchanges.  We also have data on fair listing fee costs for exchanges which are not using wash trading bots. We’ve had reports on fees ranging from 2BTC ($8000 USD at currenct prices) up to 75BTC ($300 000 USD).”

The BTI also provides a list of “trusted exchange rankings” here.

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