Crypto Wash Trading
62 Pages Posted: 2 Mar 2020 Last revised: 28 Aug 2022
Date Written: July 1, 2021
We introduce systematic tests exploiting robust statistical and behavioral patterns in trading to detect fake transactions on 29 cryptocurrency exchanges. Regulated exchanges feature patterns consistently observed in financial markets and nature; abnormal first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges reveal rampant manipulations unlikely driven by strategy or exchange heterogeneity. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume. We further document how these fabricated volumes (trillions of dollars annually) improve exchange ranking, temporarily distort prices, and relate to exchange characteristics (e.g., age and userbase), market conditions, and regulation.
Keywords: Bitcoin; Cryptocurrency; FinTech; Forensic Finance; Fraud Detection; Regulation
JEL Classification: G18, G23, G29
Suggested Citation: Suggested Citation