Starting from August 2018, the Blockchain Transparency Institute (BTI) published a set of monthly reports claiming that the global crypto exchange market is faking more than $6 billion of its daily volume (August 2018).
The researchers at BTI evaluated the user activity and traffic of the market’s biggest crypto exchanges, comparing their projected trading volume to other metrics and used data collected from exchanges on mobile app usage and API trading.
In a stunning finding, they discovered that 22 of the top 25 trading-pairs examined were subject to extensive fraud. Twenty of those exchange platforms are below 10% real volume rate (reported volume over actual volume). Moreover, the most remarkable that 12 are around 1%.
List of Exchange with 1% real volume rate (December 2018)
In fact, to fake their trading volume, many exchanges use automated programs (bots) to execute “wash trades.” A clear example of a wash trade is having account A set a Buy for 5 BTC @ $20000 while Account B sets a Sell for 5 BTC @$20000. Once the trade settles, roles get reversed and B sells back to A for virtually the same price. The overall amount spent by the colluding accounts is near-zero because no actual market position was taken by either party, and it all comes out as a wash. However, to market makers and takers participating legitimately in the cryptocurrency exchange, it appears that the trading pair (such as BTC to USD) is much more active than it is.
The dangerous part is especially for traders with new tokens being released on disreputable exchanges who’re pumping their volume in this manner, because it creates artificial interest in a new token that might not otherwise exist. Once the fake trading volume bubble pops the victims of the scam are, eventually, left with devalued coins/tokens.
In close timing with the release of BTI’s report in August 2018, the founder of crypto exchange platform OKEx, Star Xu, was allegedly detained on crypto fraud charges in China.
About the Blockchain Transparency Institute
The organization itself is a bit of a mystery: domain privacy, no registered address, a Let’s Encrypt TLS certificate, and no list of names or contacts.
They admit they can not share for fear of making it too easy for their tools to be defeated. They have a list of partners that includes Solidus Labs, Coin Space, Messari, Deepesh Chauhhari (MIT Data Scientist) and others. In addition, their financial supporters include Consensus Group, Bitwise Investments, and 10 other leading investors.