Crypto Wash Trading

114 Pages Posted: 2 Mar 2020 Last revised: 15 Oct 2020

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management

Xi Li

University of Newcastle - Newcastle University Business School

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University

Yang Yang

Institute of Economics, School of Social Sciences, Tsinghua University

Date Written: December 30, 2019

Abstract

We investigate whether centralized exchanges in the cryptocurrency markets engage in wash trading. To identify wash trades, we devise a set of tests and algorithms to examine patterns in the first significant digits of orders, trade sizes, behavioral regularities, etc., for 3 regulated crypto exchanges and 26 unregulated ones classified by their compliance status. All regulated exchanges feature trades consistent with traditional financial markets and statistical benchmarks. However, the majority of unregulated exchanges exhibit anomalous activities compared to regulated exchanges and statistical benchmarks. The patterns cannot be explained by investor activities but suggest that unregulated exchanges, especially those that are less prominent, are engaged in wash trading. We estimate that wash trades account for an average of 66% of total trading volume in unregulated exchanges, and discuss regulatory implications of such manipulative behaviors in the emerging crypto sector and in financial markets in general.

Keywords: Cryptocurrency, Wash Trading, Forensic Finance, Regulation, Blockchain, FinTech

JEL Classification: G18, G23, G29

Suggested Citation

Cong, Lin and Li, Xi and Tang, Ke and Yang, Yang, Crypto Wash Trading (December 30, 2019). Available at SSRN: https://ssrn.com/abstract=3530220 or http://dx.doi.org/10.2139/ssrn.3530220

Lin Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

Xi Li

University of Newcastle - Newcastle University Business School ( email )

5 Barrack Road
Devonshire Building
NEWCASTLE UPON TYNE, NE1 7RU
United Kingdom

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University ( email )

No.1 Tsinghua Garden
Beijing, 100084
China

Yang Yang (Contact Author)

Institute of Economics, School of Social Sciences, Tsinghua University ( email )

MingZhai Building
Beijing, 100084
China

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