• An NBER study found that 70% of transaction volume on unregulated crypto exchanges is wash trading.
• The research focused on four of the most popular cryptocurrencies – Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Ripple (XRP).
• Exchanges with a longer market presence and global user bases were less likely to engage in wash trading.
A recent study conducted by the National Bureau of Economic Research (NBER) has found that an average of 70% of transaction volume on unregulated crypto exchanges is down to wash trading – transactions meant to mislead.
The study focused on both tier 1 and tier 2 exchanges, with the former platforms ranked within the top 700 as indicated on data tracking site SimilarWeb.com. The four most popular and heavily traded cryptocurrencies – Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Ripple (XRP) – were also part of the research.
The research findings revealed that crypto exchanges with a longer market presence and global user bases were less likely to engage in wash trading. However, less prominent exchanges attracted most of the fake volume behaviour, with statistics showing that an average of 70% of volume on unregulated exchanges was tied to wash trading. On some tier 1 exchanges, the amount of wash trades reached up to 53.4%.
The report suggests that the incentives for exchanges to engage in wash trading include rankings and short term price movements. The report also states that the use of wash trading has been escalating and has become a more popular tactic among platforms, as it can help exchanges gain more visibility and attract more traders.
The researchers concluded that due to the lack of regulation, wash trading and other manipulative practices are still on the rise and that authorities should take action to prevent such activities. They also warned that while some of the wash trading is done by exchanges themselves, some of it is done by traders and market makers who are trying to manipulate the markets.