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LINKS FOR ADDITIONAL READING FOR THIS VIDEO & ALL INFO IN TEXT DOWN BELOW
Wash trading in crypto explained: https://www.theblockcrypto.com/tiny/executives-at-a-korean-exchange-komid-sentenced-to-jail-for-faking-volume/
Blockchain Transparency Institute: https://www.blockchaintransparency.org/
Check the volume across multiple exchanges here: https://cryptowat.ch/markets
Often times on Crypto Twitter there are claims of manipulation on the crypto exchanges. It’s important to understand that manipulation can come in all different forms. I think it’s good to know what they are, why they happen and although we’d all love to know who exactly is behind these malicious moves, it isn’t possible to know exactly, although some instances might be easier to determine that than others.
In this video, I want to clarify one of the different ways that manipulation can occur, explain who could be doing it and their motivation. If this is something you’re interested in learning more about, keep an eye out for more videos I will be publishing tomorrow and the next day that will cover other forms of market manipulation as well. Today I’m talking about exchanges and wash trading.
So wash trading is the practice of creating multiple trades with one account and fulfilling them with another account; both of these accounts, or all accounts that are involved are controlled by the same entity.
If you’re new to trading, at first glance this might seem like a silly thing to do. Why would someone bother to buy and sell their coins to themselves? First, it depends who is doing it and from there it is easier to understand the motivation behind it. It could be individual traders, or it could be the exchange itself.
Today I want to explain why an exchange would want to fake high trading volumes and in the videos to come this week I’ll dive deeper into why and how individual traders can manipulate the crypto markets.
Let’s dig into the exchanges.
If you’re skeptical of centralized exchanges, good, you should be. There was a report released last month by the researchers for Blockchain Transparency Institute which has revealed that the vast majority of exchanges listed on the popular website Coinmarketcap are claiming to have much higher volume than what is real and from organic users. We’re talking only about 5 exchanges have legit trading volumes from legit traders.
There are some sinister reasons why these exchanges would do this. First off, it’s cheaper and quicker to lure users onto their exchange by creating and then reporting fake volume than it is to build a marketing campaign and actually organically grow a user base. But the real money isn’t in the user base and the fees collected from their trades. The real money comes from the listing fees for the different cryptocurrencies that want to benefit from the exposure of all of those traders. Keep in mind that most of that volume is fake, and the user base doesn’t really exist. These exchanges are getting paid by cryptocurrencies to be listed on an exchange that gets most of its trading volume from the exchange itself and its bots and their wash trades.
So I’m going to encourage you to be very weary of new exchanges that are boasting trading volumes that surpass well-known, long standing exchanges. Not only are they most likely faking this volume to lure you in, they are raking in the cash from desperate cryptocurrencies. If an exchange is willing to do this, I can only imagine what they would be willing to do with your cryptos if you chose to transfer them there. Who knows, maybe it would suffer a mysterious hack and suddenly your cryptos are lining their pockets and buying their lambos.
Some will blame coinmarketcap for blindly or who knows, maybe not so blindly, publishing unrealistic trade volumes for these exchanges. But most will blame the lack of regulation in this space for allowing these scams to take place. Both would be correct. But I’m going to encourage you to search solutions like self-regulation and who is working to make this a better reality in the crypto space. In the final video of this market manipulation series I will be covering some of these efforts and what they have accomplished so far.