The NBER researchers discovered that in some crypto exchanges, the wash trading volume can go as high as 80%.
With crypto exchanges now becoming a focus as the FTX fiasco continues, a new research paper suggested that nearly three out of four transactions in unregulated exchanges are phony.
A working paper titled “Crypto Wash Trading” was recently published by the National Bureau of Economic Research (NBER). Considering statistical and behavioral patterns to determine which of the transactions were legitimate and which transactions were not, the paper carefully studied 29 unregulated crypto exchanges and concluded that, averagely, over 70% of the volume within the platforms are wash trades.
Researchers also discovered that some exchanges’ wash trading volume goes as high as 80% of the total trading volume. The researchers wrote in that in twelve “tier-2 exchanges,” wash trades reached nearly 80% of the total trade volume. They added:
“These estimates translate into wash trading of over 4.5 trillion USD in spot markets and over 1.5 Trillion USD in derivatives markets in the first quarter of 2020 alone.”
Based on the information published by the researchers, there are near-term incentives for wash trading. The study said that fake transactions mostly affect the rankings of the exchanges on data and statistics websites like CoinMarketCap. Additionally, fake transactions also impact the crypto prices within the exchanges over the near term.
Buy Crypto NowIn the meantime, the FTX debacle continues gaining lots of attention as wallets linked to Alameda Research have shown some movements, funneling nearly $1.7 million in assets via crypto mixers. These movements were observed days after the former FTX CEO Sam Bankman-Fried was released on a $250 million bond.
As the abrupt FTX collapse damaged people’s trust in centralized exchanges (CEXs), executives working on CEXs have tried to voice their sentiments on how they can win back user trust. On November 25, reporters spoke with different leaders within crypto exchanges and discovered that most are positive that the sector can still recover post-FTX.
