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Wash Trading Responsible for $6T of Crypto Trading Volume in Q1 2020: Report
In Q1 2020, more than $6 trillion of crypto trading volumes came from wash trading.
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A new research report stated wash trading resulted in over six trillion dollars in artificial crypto trading volume in Q1 2020 across exchanges. The study suggests that wash trading remains “a rampant, industrywide issue” in the crypto market.
More than 70% of Crypto Exchange Volume Result of Wash Trading
Wash trading accounted for over $6 trillion in crypto fake volume in Q1 2020. Overall, more than 70% of trading volume on crypto exchanges was derived from wash trading, according to the research based on the analysis of the crypto market volumes in the second half of 2019.
Wash trading refers to a manipulative practice in financial markets where a trader simultaneously buys and sells the same asset to create the appearance of genuine trading activity. However, with no change in ownership, such moves can deceive other investors and artificially inflate trading volume.
Per the research report, US-listed crypto exchange Coinbase did not display any signs of wash trading during the period, Cong said. In 2021, Coinbase, sued by the US Securities and Exchange Commission (SEC) last month, settled with the Commodity Futures Trading Commission (CFTC) after the regulator alleged that an exchange employee took part in wash trading over six weeks in 2016.
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Binance and Binance.US Allegedly Engaged in Wash Trading in 2019
Meanwhile, the researchers revealed that Binance, the world’s largest cryptocurrency exchange, traded roughly 46% of its trading volume with itself in 2019. These figures only consider Binance’s global exchange and not Binance U.S., which was launched later that year.
However, the SEC sued Binance’s US affiliate and its CEO Changpeng Zhao in June, alleging that a firm Zhao controlled inflated trading volumes on the US exchange. In particular, the SEC said that Binance.US allegedly magnified trading volumes through dozens of user accounts held by Sigma Chain, a Swiss trading firm controlled by Zhao.
In the complaint, the SEC alleged that the day after Binance.US’ launch in September 2019, wash trading between Sigma Chain accounts and accounts associated with Zhao and other senior employees accounted for almost 70% of the trading volume for one token. Since the regulator unveiled its lawsuit, the platform’s market share has fallen to 1% in the US.
Do you think wash trading should be regulated in crypto? Let us know in the comments below.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
