Direct Evidence of Bitcoin Wash Trading
51 Pages Posted: 3 Jun 2019 Last revised: 27 Jul 2021
Date Written: January 7, 2019
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. Wash trades tend to follow low past transaction fee revenues to the exchange, significantly increase subsequent transaction fee revenues, and involve several known exchange insiders. The evidence is consistent with the hypothesis that the exchange itself commits wash trading to inflate apparent trading volume 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: Suggested Citation