A new Forbes analysis of 157 crypto exchanges finds that 51% of the daily bitcoin trading volume being reported is likely bogus.
Among the emerging and turbulent market for cryptocurrencies, of which there are no fewer than 10,000 tokens, bitcoin, is the great granddaddy, the blue-chip, representing 40% of the $1 trillion trillion in crypto assets outstanding. Bitcoin is crypto’s gateway drug. An estimated 46 million adult Americans already own it according to New York Digital Investment Group, and an increasing number of institutional investors and corporations are warming to the nascent alternative asset.
But can you trust what your crypto exchange or e-brokerage reports about trading in the most important digital currency?
One of the most common criticisms of bitcoin is pervasive wash trading (a form of fake volume) and poor surveillance across exchanges. The U.S. Commodity Futures Trading Commission defines wash trading as “Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position.” The reason why some traders engage in wash trading is to inflate the trading volume of an asset to give the appearance of rising popularity. In some cases trading bots execute these wash trades in tokens, increasing volume, while at the same time insiders reinforce the activity with bullish remarks, driving up the price in what is effectively a pump and dump scheme. Wash trading also benefits exchanges because it allows them to appear to have more volume than they actually do, potentially encouraging more legitimate trading.