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How Cryptocurrencies FAKE Their Trading Volume [Wash Trading]

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  • Root Admin

A 20-year-old college student explains how he made a business of faking trade volumes at crypto exchanges.

The Takeaway

  • Gotbit inflates trading volumes on obscure cryptocurrency exchanges for a fee and has about 30 token projects as clients.
  • The firm programs bots to trade tokens back and forth with each other, creating the illusion of active markets so the assets can get listed on CoinMarketCap. Its co-founder says exchanges are aware of this manipulation but are not interested in stopping it.
  • While it's rare to hear market manipulators talk openly about their trade, there are other businesses like this out there, experts say.

To cryptocurrency professionals trying to legitimize their industry, market manipulation is a scourge. To 20-year-old Alexey Andryunin, it's a living.

A sophomore at Moscow State University, Andryunin is the co-founder of Gotbit, a firm that specializes in making obscure cryptocurrencies look like they're being actively traded. For a fee, the two-man shop will program bots to trade a token back and forth with each other on also-ran exchanges until it has enough "volume" to get listed on CoinMarketCap. Once it appears on that influential market data site, an asset can gain the attention of larger platforms and bigger investors.

The business is not entirely unheard-of, either, in a global market notorious for its lack of transparency. Bitwise Asset Management, one of several U.S. firms seeking regulatory approval to launch a bitcoin exchange-traded fund (ETF), has estimated that 95 percent of bitcoin trading volumes are faked and only 10 exchanges publish reliable data about volumes on their platforms, without inflated numbers.

Bobby Ong, CEO of crypto ranking portal CoinGecko, said businesses like Gotbit exist and "it won't be too hard to find such people who can help you with these services."

"These operators usually go around claiming that they can do market-making for token projects and inflate trading volume for a fee. This practice is also known as wash trading and is illegal," Ong said.

It is possible to detect wash trading from the outside, Ong noted. Looking at the trade history and order book of exchanges, one can notice certain patterns and see that something fishy is going on:

"If trades happen outside the bid-ask spread or constantly within the bid-ask spread, this is a clear example of wash-trading in action. One can also look at the trade interval and trade size to detect common recurring patterns to find wash-trading activities."

The bots

To show imaginary volumes, Gotbit's bot fills an exchange’s order book – again, we're talking about small exchanges with minuscule volumes – and closes the orders itself using the same or another account. Usually, clients have four accounts, but two are enough for trading with yourself, Andryunin says.

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  • MrD changed the title to How Cryptocurrencies FAKE Their Trading Volume [Wash Trading]
  • Root Admin

Ive identified over the time many cases of wash trading and if you daily trading or watch a couple of mins on the transactions over the orderbook you will identify the patterns as well.

Several signs:

  • Orders being skipped. You will see that for instance if you place a selling order at $1 the the order just after you at $1.05 will be processed while yours will be not. If would be a real trader would obviously preffer to purchase a coin at $1 instead of paying more. But those are bots that do trades between eachother to increase volume.
  • Unusual order amounts

Have you identified other patterns of wash trading in crypto? Let us know.

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