70% of unregulated stock trades are fictitious trades: NBER study

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As exchanges become a priority as the FTX fiasco continues, a new research paper suggests nearly three out of four trades on unregulated exchanges are fake.

A working paper titled Crypto Wash Trading was recently released by the National Bureau of Economic Research (NBER). Using statistical and behavioral models to determine which trades were legitimate or not, the paper studied 29 unregulated exchanges and came to the conclusion that on average, more than 70% of the volume within the platforms are fictitious trades.

Researchers have found that some exchanges wash the trading volume up to 80% of the total trading volume. The researchers wrote that in twelve Tier 2 exchanges, fictitious trades accounted for nearly 80% of total trade volume. The researchers wrote:

These estimates translate to more than $4.5 trillion in fictitious trades in spot markets and more than $1.5 trillion in derivatives markets in the first quarter of 2020 alone.

According to the researchers, there are short-term incentives for the wash trade. The study suggested that fake trades often impact trade rankings on data and statistics websites like CoinMarketCap. Additionally, fake trades also affect crypto prices within exchanges in the short term.

Related: 40% of 40,000 Respondents Plan to Buy Crypto in 2023: Blockchain.com Survey

Meanwhile, the FTX debacle continues to garner attention as Alameda Research-linked wallets showed movement, funneling around $1.7 million in assets through crypto mixers. The moves came days after former FTX CEO Sam Bankman-Fried was released on $250 million bail.

While the collapse of FTX has damaged people’s trust in centralized exchanges (CEX), executives working on CEX have expressed their feelings about how they could regain user trust. On November 25, Cointelegraph spoke to various crypto exchange leaders and found that many are confident that the industry can still recover after FTX.

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