Doing the Laundry: Wash Trading on Crypto Exchanges

Singapore, SINGAPORE – One of the most respected figures in Swiss watchmaking is Jean-Claude Biver who has revived the fortunes of Omega and spurred the future of others such as Hublot and Tag Heuer. He was a marketing genius who famously sold Blancpain watches to a retailer and bought them back by proxy to spark interest in a long-dormant brand. And it worked extremely well as Blancpain was eventually sold to the precursor of the Swatch Group and he became a titan in the industry.

Most notably, he was honoured at the Grand Prix d’Horlogerie de Geneve (GPHG) – the equivalent to the Oscars in horology – for his tremendous contribution to the Swiss watch industry. So, is it wrong to be the starter motor to initiate initial interest? To get things going. Or to ignite a spark. Self-promotion is rampant on social media with ‘like’ buying and there are ways to manipulate ‘views’ on YouTube. When does it cross the line of blatant deception?

Well, the lab coats at the Blockchain Transparency Institute (BTI) recently concluded that most of the top crypto exchanges have severely inflated the volumes of their Bitcoin (BTC) trading pairs and that CMC volumes are not an accurate indicator of daily volumes. No one was singled out as a witch hunt but rather almost everyone safe for Binance, Bitfinex, and Japan-registered Liquid were called out. Worse were that some overcompensated by close to 99% with just 1% being actual volume. This is just BTC.

Let’s put that in perspective: you will excuse yourself to the gents and never come back if you realise your Tinder date unpleasantly only looks 1% of what she does on her profile picture. It’s an ugly sight indeed as you lose trust in humanity because of beauty apps and the deceptive makeup transformation videos. Would you dare to turn on the lights and see what’s truthfully being transacted in the crypto market daily? Do you want to see how hot dogs are made? Or do you prefer a sprinkling of Trump-like misleading technical indicators to keep you sane?

Most will expect Ethereum (ETH) and other altcoin figures to be over-embellished. Wash-trading in these instances are manual or automated manipulation of the order books where bids and asks are done by the same unit to contribute to overall volume. There is no genuine buying and selling taking place as it is artificial market activity. And FOMO is when other investors are lured into the net and project founders pay through the nose for listing fees that only keeps bot in healthy employment.

There are also third-party white apron services who charge exorbitant fees if there are trust issues that exchanges will trade against gullible project owners trying to go at it solo on their turf. Some do it with APIs that are painfully obvious as traders who look to take a dip in the wash or bathe themselves in the river of fake volume can attest.

As real as the river in The Truman Show.

Is it a necessary evil to entice more traders to join in the fun? Volatility in the market is a good thing regardless of the breakout levels. Stop-loss triggers don’t matter even as Tether (USDT) claims it has the USD it professes to have. Parabolic moves leading to new highs will crumble under the weight of unsustainable churning? Chumming the water for sharks done daily smells fishy.

How is it possible to be in a price discovery phase when the price and volume are not an accurate reflection of demand and supply. Remember the guy called Didi Taihuttu who sold everything for crypto and is now registered as a homeless man with an RV to house his family? Is he sweating it that the hot supermodel he has grown fond of is being butchered with plastic surgery courtesy of exchanges who decided that a little facelift doesn’t hurt anyone but went full La Toya Jackson on us as instead?

Most assume that they are done by exchanges themselves. For major cryptocurrencies in the top 10, this is usually the case as liquidity and robust trading is what is craved by the exchanges across all actively-traded token pairs. As to new tokens and projects trying to avoid a dump out of the gates that will bring them to their knees with 90% down from ICO price, exchanges will also provide market-making and price support services by creating two-way bids and offers for a liquid order book. BTI has a list of exchanges not to do business with. And those who tell us to buy the panic in the crypto market now have the added doubt that they have no idea what true insecurity looks like.