Cryptocurrency exchanges tend to attract new users when there is a large trading volume on their platforms. This is why some exchanges tend to inflate the trading volume that they have, creating a fake demand. Back in December, the Blockchain Transparency Group released a report in which they show that there are 64 exchanges that have been faking 67% of their trading volume. However, things can get worse. Crypto Integrity, a group of data researchers, found that 88% of the trades seem to be artificial.
Almost 90% Of Trading Volume is Artificial
In a recent report released by Crypto Integrity, they show that 88% of crypto trading volume in February 2019 is allegedly inflated. Some of the exchanges that have experienced this issue ate OKex, Bit-Z, ZB.com, CoinBene, LBank, Huobi Global, BW, HitBTC, IDAX, BitMart, and CoinTiger, among others.
As per the report, there are some symbols that had 100% fake volume. The analysis focused on several liquid symbols of each exchange. However, none of these platforms supports fiat currencies. The firm informs that the sample is not supposed to be representative since they’ve focused on exchanges with suspicious trading activity.
The report released by the company explains that the trading volume is an indicator of the intrinsic price of an asset. Moreover, if there is a change in the trading volume, this could be related to a change in the asset’s future price.
Wash trading is completely prohibited n regulated financial markets. This practice artificially increases trading volume creating the impression that there is a larger interest in the asset than there actually is.
As per the report, there are three mechanisms related to wash trading: in spread trade without limit orders, in-spread trades with short-lived limit orders and trades near bid-ask caused by short-lived limit orders.
- In-spread trade without limit orders:
This practice allows exchanges to fake trades without changing the order book. Exchanges can engage in the practice without someone hitting an order. The report says that the most inexperienced exchanges tend to use this technique.
- In-spread trades with short-lived limit orders:
These are orders that are present in the order book for just milliseconds, which shows that there is something wrong.
- Trades near bid-ask caused by short-lived limit orders:
This is a sophisticated wash trading mechanism that gives the appearance that there is a more organic flow and trades.
The market has been in a bear trend since 2018 and trading volume (excluding wash trading) has been falling throughout the year. Nevertheless, since November 2018, trading volumes have started to recover. It is just a matter of time until these exchanges become less used and wash trading would not be able to attract more users to their platforms. The whole crypto space is searching for more serious and reputable exchanges and infrastructure for it to keep growing and evolving.
Crypto Integrity is a group of experts and volunteers across Europe and Asia that aim at detecting market manipulation and anomalies in the virtual currency market.