As many as seven in 10 cryptocurrency trades on the world’s most popular but unregulated exchanges may be people buying from themselves to artificially inflate prices, according to a new analysis.
A study of 29 cryptocurrency exchanges, where people buy and sell the virtual currencies, undertaken between July and November 2019 has found significant volumes of “wash trading” – where an investor sells and buys the same asset to create artificial interest in an investment.
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 behavioural 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.
They quantified the “wash trading” on each unregulated exchange, which averaged over 70% of the reported volume.
The fabricated volumes – amounting to trillions of dollars annually – improve exchange ranking and temporarily distort prices, they found.
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.
Regulators also increased scrutiny on ‘wash trading’ behaviour, with the Canada-based crypto trading platform Coinsquare agreeing to settle with the Ontario Securities Commission.
The exchanges studied were Bitstamp, Coinbase, Gemini, Binance, Bittrex, Bitfinex, HitBTC, Huobi, KuCoin, Liquid, Okex, Poloniex, Zb, Bgogo, Biki, Bitz, Coinbene, DragonEX, Lbank, Mxc, Fcoin, Exmo, Coinmex, Bibox, Bitmart, Bitmax, Coinegg, Digifinex and Gateio.
- George Russell
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