Crypto Exchange Wash Trading Stats Paint a Disturbing Picture

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It’s no secret that wash trading continues to plague the crypto market. An article titled “Crypto Wash Trading,” published by the National Bureau of Economic Research (NBER), revealed that an overwhelming number of unregulated crypto exchanges account for a significant share of wash transactions.

The nonprofit research organization studied 29 major exchanges, such as Binance, Coinbase, and Huobi, as well as lesser-known exchanges over a period from July 9 to November 3, 2019.

Crypto Wash Trading

Based on third-party website ranking, representativeness, and API compatibility, crypto exchanges have been ranked Tier 1 (ranked in the top 700 in SimilarWeb’s finance/investment section and Tier 2 (all ranked outside the top 960. Crypto-asset exchanges, such as Bitcoin, Ethereum, Litecoin, and XRP, were studied.

The authors took several approaches to detect instances of fictitious trading that are not likely to be affected by “dispersed traders’ strategies, exchange characteristics, or asset class specifics.”

It was found that sham trades accounted for up to 77.5% of total trading volume on unregulated exchanges, with a median of 79.1%. Meanwhile, it was observed that fictitious trades on the twelve Tier 2 exchanges accounted for more than 80% of the total trading volume, “which is still above 70% after accounting for observable exchange heterogeneity” .

The newspaper said:

“Our first key finding is that shadow trading exists widely on unregulated exchanges, but is absent on regulated exchanges, they wrote. 1 failing more than 20% of the tests and Tier 2 scholarships failing more than 60%.

Worrying figures

The study stated that wash trading in crypto exchanges is positively correlated with short-term crypto-asset prices.

Additionally, wash transactions occur less on platforms with “longer establishment histories and larger user bases.” On the contrary, less popular exchanges have short-term incentives for fictitious trades without attracting attention.

“While current trading incentives and ranking systems fuel the rampant wash trade on unregulated exchanges, regulated exchanges, having committed considerable resources to compliance and licensing and facing severe penalties for market manipulation, do little washing trade”

In the first quarter of 2020 alone, the NEBR study recorded a whopping $4.5 trillion in fictitious trades in the cash markets, while the same for the derivatives market stood at $1.5 trillion. dollars.

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