Crypto Wash Trading Dominates Unregulated Exchanges
Research shows that around 70% of transactions in unregulated crypto exchanges are wash trading.
Recent research by the National Bureau of Economic Research (NBER) shows that around 70% of transactions in unregulated crypto exchanges involve wash trading.
Vertically integrated centralized exchanges can, when unregulated, fake, on average, over 70% of the reported volume to improve ranking and attract users, from Lin William Cong, Xi Li, Ke Tang, and Yang Yang https://t.co/cgwBbScOgf pic.twitter.com/wZQmwRqrSc
— NBER (@nberpubs) December 28, 2022
Crypto wash trading is buying and selling the same crypto in order to mislead the public with false and artificial price changes. Wash trading in general is deemed illegal. That’s because of the price manipulation of the said commodity, security, or crypto.
The research done by NBER included extensive analyses of 29 different unregulated crypto exchanges. The result showed that more than 70% of all transactions involve some form of wash trading. That includes trillions of dollars worth of volume in trading done in order to manipulate the market prices of various cryptocurrencies.
Those prices are then reflected on analytical tools such as CoinMarketCap (CMC). Millions of people use CMC on a daily basis. The average user cannot identify that the artificially inflated prices are a result of wash trading. Therefore, the research suggests that using unregulated exchanges is prone to lead to more aggravation in the crypto industry.
At the same time, the crypto community lost its trust in centralized and regulated exchanges because of the recent FTX fiasco.
The collapse of FTX was one of the biggest disasters in the crypto industry. This research becomes much more significant in the current state of the market. Recently, millions of dollars of cryptocurrencies were traded by wallets that were linked to Alameda research.
All in all, such studies indicate that some sort of “sensible” regulation is necessary for the crypto market. However, this should not be a justification for extensive use of authority in the crypto industry. That is because centralization goes against the key principle of cryptocurrencies, which is decentralization.
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Filed under: Bitcoin - @ December 29, 2022 6:22 pm