Ever since cryptocurrency trading was possible, exchanges were often accused of price manipulation and wash trading. Well, it comes with the territory. Bad traders will often blame exchanges of manipulation and bad exchanges will often initiate a pump and dump scheme (to lure traders) or conduct wash trading.
What is Wash Trading in Crypto?
A wash trade is some kind of market manipulation in which a trader simultaneously sells and buys the same coin to create misleading, artificial trading volume. A trader will place a sell order, then place a buy order to buy from himself, or vice versa. They use trading bots to automate the process.
The Era of Zero Trading Fees
Back when China allowed zero trading fees with CNY (Chinese Renminbi) pairs, it was relatively easy to buy and sell your own coins in high frequency since you don’t pay any trading fees. What happened was large orders are bought and sold of almost the same amount or value very quickly. This increases the trading volume but affects price very little. The aim of this activity was to place the exchange on top of the list of exchanges with the most liquidity - thereby attracting real traders. I saw this first hand trading at BTCChina, Huobi and Okcoin CNY. The trading activity felt like trading forex.
BTI accuses OKEx of 75% Wash Trading
In its report Blockchain Transparency Institute (BTI) claimed OkEx and Bibox was the highest offenders in terms of wash trading. BTI checks the reporting authenticity of cryptocurrency exchange volumes through its secret proprietary algorithm. They claim they could clean all wash trading from exchanges’ volumes.
But the problem here is how did they arrive at that conclusion? What method did they use to derive the results. OkEx believe that BTI has not done their due diligence, stating: “BTI’S RESEARCH METHODOLOGY IS NOT TRANSPARENT AND THEY DO NOT PROVIDE DATA TO BACK UP THEIR CLAIMS.”
perfect -- I think you have the right idea. I am not a fan of BTI or bitwise in their methodology and think is very faulty TBH but they pretend like it is some secret sauce. Suddenly some check mark verified "100% certified angus beef" type thing is getting popular in crypto now— BTCVIX (@BTCVIX) September 24, 2019
I'm asking u guys these questions cuz u guys claim "transparency" on ur site but I can not find anything about ur team or how ur able to derive the wash trading data claims you are making.— Tai Zen (@HeyTaiZen) September 22, 2019
If I can verify that ur methodologies are "feasible" I want to share it with our viewers.
What’s more OKEx has been active in removing bad actors in its exchange. “I would say there is a lot of suspicious trade activity on OKEx,” said Lennix Lai, Director of Financial Markets for OKEx. “And we’re working on a lot of measures to prevent that stuff.”
OKEX Price-suppression Exposed. A group of traders were suppressing BTC prices. OKEX has rolled back a bunch of these transactions. My hat of to the boys OKEX for catching this. #cryptocurreny #bitcoin #asshat pic.twitter.com/dt4cgcMXB4— Mia Tam (@_blockandchain_) March 30, 2018
OkEx is actively tracking possible manipulation with a 24/7 team. They are also a party to the Data Accountability & Transparency Alliance led by CoinMarketCap.
The truth of the matter is: Wash trading in crypto is unprofitable for extended periods of time because you’ll be paying for trading fees, unlike before when trading was free. Even if the exchange is doing it themselves, it would be unaccountable in the ledgers.
The only way wash trading can be done is through transaction mining which is a mechanism that rewards those who place trades by reimbursing their trading fees through the issue of new exchange tokens.