Altcoin News: Large Cryptocurrency Exchanges Are Actively Used to Falsify Trading Volumes

February 27, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

Venture and technology company CoVenture presented the results of a study indicating that many large cryptocurrency exchanges can participate in the manipulation of trading volumes, at least indirectly.

In particular, their attention was attracted by the “wash trading”, which they define as follows:

“When a trader/s places a buy and sell order at an identical price without changing ownership of the underlying asset. They use bots to automate these orders leading to an artificially increased volume. This gives unsuspecting traders the illusion of liquidity.”

An example of a probable laundering trading. Many transactions with the same volume and price of execution.

CoVenture refers to last year’s research related to activity on the South Korean stock exchange Bithumb, which the authors found to fabricate 95% of the volume over several months. As CoVenture notes, such practices allow exchanges not only to attract traders but also to collect undeservedly high fees for listing tokens:

“Exchanges with high volume can charge the highest fees from ICOs who want to list on their platform, collect the most revenue from high trading fees, and have the liquidity and user data to prop trade on their own platform.”

The most active pairs according to CoinMarketCap; only two have completely real volumes

Doing business this way exchanges allow the unregulated nature of the cryptocurrency market. This factor must be considered when comparing the volume of regulated and unregulated trading platforms. The risk of falsification of volumes increases if a substantial part of transactions is carried out through the API and/or during low market activity. In addition, attention should be paid to a large number of recurring bids, issued at the same price, and the absence of volatility despite the high liquidity.

In practice, users are invited to compare the average daily trading volume of the exchange with the traffic on its website (through the Alexa Web Traffic Rankings), which can help identify inconsistencies.

Trading volume on the largest cryptocurrency exchanges in the context of web traffic

Another method is to calculate the amount of capital needed to change the price in the five most liquid pairs by 10%. A case in point is CoinBene, which claims the same 24-hour trading volume as Bitfinex, but requires only $13,600 for a significant change in the rates of the most liquid assets, while at Bitfinex this value is $9.47 million.

Author: Marko Vidrih