A brand new report that analyzes wash trading activity on numerous crypto exchange platforms says there is compelling evidence that about 98 percent of trading activity on some exchanges could actually be fake.
The report is the result of a research carried out by Blockchain Research Lab, which analyzed existing data on 12 popular exchange platforms using key metrics, including web traffic, wallet sizes, and trading volumes, to find out the extend of wash trading for seven different cryptocurrency exchanges.
Wash trading is one of the most used methods to manipulate data to artificially enhance reported trading volumes on crypto exchange platforms. The disinformation is dangerous as it deceives the majority of traders while giving some platforms an unfair advantage.
Anything above $45 Million in BTC/USD Daily Trading Volume is Shady
In order to determine the level of fake trading on each exchange platform, the research team used both web traffic and cold wallet data of the exchanges as a benchmark.
Blockchain Research Lab put the platforms in three different categories based on prior evidence of wash trading activity on their websites. Bitfinex, Bitstamp, Bittrex, Kraken, and Poloniex were put under the instances of little to zero evidence of wash trading activity. However, Binance, HitBTC, KuCoin, and YoBit fell into the category with medium wash trading evidence, and OKEx, Huobi, and FCoin were the platforms with the highest levels of wash trading activity.
After gathering data for around five months between July 23rd and November 10th for each exchange platform, the discoveries have affirmed that up to 98 percent of trading volume in already suspected websites is indeed fake.
“Furthermore, drawing upon information on token balances, we have identified similar magnitudes of suspicious volume (72 percent to 97 percent) for three of the four exchanges that were previously not clearly linked to wash trading,” the report says.
The collected data included the balances on exchanges’ crypto wallets and the trading volume for Bitcoin, Ether, XRP, U.S. Dollar, and Tether Stablecoin. Tether has earlier been associated with other major manipulative activities in the crypto market, starting with 2017.
The daily trading volume for BTC/USD as the most popular pair was determined to be $490 million for high wash trading platforms, and $170 million for the other wash trading activity exchanges group, in comparison to only $42 million for platforms reporting real trading volume data.
Data Metric Websites Should Emphasize Fake Trading Activity
Part of the flaws in crypto markets comes from weak regulation, as high liquidity is used to appeal to more investors with the pledges of massive advantages.
“Liquidity is a key quality of such markets and one of the areas where manipulation may yield large payoffs to the detriment of investors,” the report notes.
Exchanges are regularly incentivized to practice wash trading activity in order to promote a particular digital asset or increase customers and traffic to their websites.
Blockchain Research Lab is now asking data metrics like CoinMarketCap and Coingecko to add information about wash trading activity on their platforms so that unsuspecting investors can make more informed choices.
CoinMarketCap is a website that provides cryptocurrency market cap rankings, charts, and more. It was purchased by Binance for $400M in 2020.
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