Business & Finance

Crypto Wash Trading: Even Binance and Huobi Aren’t 100% Authentic

The recent report published by BTI suggests the existence of wash trading in data displayed by Binance. The report concludes that about 10% of trading on Binance is forged due to wash trading.

Overall, 30 trading pairs on the exchange were experiencing wash trading and there were some pairs having up to 75% forged trading volume. However, bitcoin and Ethereum trading volumes mentioned on the exchange are said to be 85 to 95 percent accurate.

It all started when Bitwise Asset Management and the Blockchain Transparency Institute (BTI) published a report a couple of months ago about the fake data incorporated by several cryptocurrency exchanges. Consequently, Bitwise concluded that 95% of the reported volume, at $6 billion per day, was forged and deceiving.

According to Bitwise’s latest report, Huobi Global had reported inflated trading volume. The report explains that Huobi has been adhering consistently an anomalous pattern while reporting trading volumes.

According to the latest findings of both institutions, many exchanges that weren’t previously involved in illicit activities such as wash trading, a practice where assets or stocks are bought and sold to feed misleading information about the actual market, have deteriorated substantially by compromising on the authenticity of data related to trading volumes of bitcoin and several other altcoins.

Back then, Bitwise presented a report to the U.S. Securities and Exchange Commission (SEC) which claimed that the market of bitcoin has been overestimated. The report explained the disorder and inefficient traits of the market by highlighting the difference of bitcoin prices quoted by cryptocurrency exchanges CoinBene and BCEX.

While the price of bitcoin appeared to be $3,562.29 on CoinBene, BCEX displayed it to be $3,203.60. Surprisingly, out of 81 exchanges scrutinized by Bitwise, only 10 — Binance, Bitfinex, Kraken, Bitstamp, Coinbase Pro, bitFlyer, Gemini, itBit, Bittrex and Poloniex — were not involved in portraying false data.

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When similar research was also done by the Blockchain Transparency Institute, the fraudulent nature of several exchanges was confirmed. The Blockchain Transparency Institute identified many bad actors in the crypto world and discovered four different bot strategies used by exchanges to wash trade.

Acting as a double check, the institute nominated a few exchanges exhibiting unbiased behavior which were also among Bitwise’s list of 10 exchanges reporting actual volume.

Unable to explain why the trading volume disappeared after three weeks, Bitwise suggests that people engaged in wash trading at Huobi had aligned to be more in line with the detection methods so they aren’t detected while performing illegal practices. In this regard, the report elaborated:

We also recognize that Huobi might have taken action to clean up wash trading on their platform within that time frame, but that view is challenged by the fact that Huobi’s reported bitcoin trade volume did not meaningfully drop during that time.

In the past, Bitwise explained the methodology it will be opting to negate the effects of these fraudulent activities. Bitwise stated in its previous report that it will be calculating its net asset value (NAV) by taking an equal-weighted average of the volume weighted median price of six five-minute periods of data received from 10 exchanges shortlisted earlier. Bitwise claimed that by taking an equal-weighted average, market manipulation will be made almost improbable as bad actors would be required to manipulate data of several exchanges to impact the NAV.

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Furthermore, taking a median price will ensure that a single outlier trade doesn’t influence NAV. However, if the majority of global spot bitcoin volume in a five-minute window is manipulated, taking median wouldn’t be sufficient to nullify effects on NAV. In addition, Bitwise described the inclusion of in-kind creation and redemption mechanisms to prevent shareholders from harm if NAV prices are severely manipulated.

To ensure that mass adoption continues and cryptocurrencies become mainstream, the aforementioned false practices must be dealt with effectively. These practices by different exchanges are harming the repute of already under pressure crypto space. These practices not only break the trust of bitcoin and crypto enthusiasts but also open up cryptocurrency for extreme criticism. Like during an interview, U.S. Securities Exchange Commission Chairman, Jay Clayton spoke against the crypto market which unlike other stocks market was not capable of resisting wash trading. He said:

We have sophisticated rules and surveillance to ensure that people are not manipulating the stock market. Those cryptocurrency markets by and large do not have that. And we’re working hard to see if we can get there.

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Fatir Malik

Electrical engineer by profession, turned into blockchain developer. Fatir contributes regularly with his insights about latest developments in fintech sector. Contact the editor at editor.opinions@blockpublisher.com

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