The Blockchain Research Lab published a report on August 20, 2020, in which it noted that previous studies have alleged or found that cryptocurrency exchanges use wash trading to “falsely signal their liquidity.”
The team at Blockchain Research Lab said they had monitored twelve digital currency exchanges for different metrics related to Internet traffic and the “size of their administered user funds.”
The report states:
”The market for cryptocurrencies is notoriously prone to manipulation (Ante, 2019; Bitwise Asset Management, 2019; Cong et al., 2020; Li et al., 2020). One form of market manipulation is wash trading: trading volume artificially created by a manipulator who reports volume that does not actually exist (e.g. an exchange) or who executes trades against himself (e.g. a trader) and is not blocked by the exchange.”
Last year, the Blockchain Transparency Institute had claimed that OKEx and Bibox were the exchanges with the highest amount of wash trading.
In March 2019, Bitwise Asset Management also published a report on Bitcoin (BTC) trading volumes. The San Francisco-headquartered index fund provider found that around 95% of Bitcoin (BTC) trading volume, as reported on CoinMarketCap, was attributed to wash trading.
Blockchain Research Labs claims that the fake high trading volume due to wash trading raises the visibility of exchanges on popular websites that monitor cryptocurrency markets, like Coinmarketcap.com. Wash trading makes these trading platforms seem more attractive to investors who want to gain access to liquidity, the report noted.
However, this may lead to bad investment decisions based on false, misleading or inaccurate information. Wash trading can negatively impact the operations of legitimate exchanges, which may lose customers to unfair competition.
The report notes:
“The weak regulation of cryptocurrency markets makes them vulnerable to manipulation.”
The study classified digital asset exchanges into three groups. Exchanges with “little to no indication of wash trading,” including Bitfinex, Bitstamp, Bittrex, Kraken, and Poloniex. A “mixed-evidence group” of Binance, HitBTC, KuCoin, and YoBit. And crypto exchanges that showed “overwhelming prior evidence” of wash trading included FCoin, Huobi, and OKEx.
(Note: To view the full report, check here.)
As covered in a separate report, crypto markets are plagued with manipulation, “endless” wash trading, but industry executives are confident about H2 2020 performance.
Compliant cryptocurrency derivatives exchanges accounted for only 1% of the trading volume of the sector during Q2 2020 with $21.62 billion in reported volume, according to a recent report.
In addition to allegedly engaging in market manipulation, major digital asset exchanges such as Binance and Huobi were used to transfer $2.8 billion in Bitcoin to criminals in 2019, according to a report from Chainalysis.