Direct Evidence of Bitcoin Wash Trading

51 Pages Posted: 3 Jun 2019 Last revised: 2 May 2021

See all articles by Arash Aloosh

Arash Aloosh

Neoma Business School

Jiasun Li

George Mason University - Department of Finance

Date Written: January 7, 2019

Abstract

We use the internal data of a major Bitcoin exchange leaked by hackers to detect wash trading – a type of market manipulation in which a single trader clears her own limit orders to “cook” transaction records. Our finding provides direct evidence for the widely-suspected “fake volume” allegation against cryptocurrency exchanges, which has so far only been backed by indirect inferences. Roughly 33% of all transactions are among traders who have engaged in wash trading. Wash trades tend to occur following periods of low transaction fees collected by the exchange, and they significantly increase subsequent transaction fee revenues. Trades that engage in wash trading include previously-exposed exchange insiders. The evidence is consistent with the hypothesis that the exchange commits wash trading itself to inflate apparent trading volume so as to look more attractive to deceived customers and boost fee revenues. We also use our direct evidence to evaluate the indirect inference techniques proposed in the literature.

Keywords: bitcoin; cryptocurrency; exchanges; forensics; market manipulation; regulation.

JEL Classification: G12, G18, O31, O35

Suggested Citation

Aloosh, Arash and Li, Jiasun, Direct Evidence of Bitcoin Wash Trading (January 7, 2019). Available at SSRN: https://ssrn.com/abstract=3362153 or http://dx.doi.org/10.2139/ssrn.3362153

Arash Aloosh

Neoma Business School ( email )

1 Rue du Maréchal Juin,
Mont Saint Aignan, 76130
France
+33232824736 (Phone)

Jiasun Li (Contact Author)

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://sites.google.com/site/jiasunlihome/

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