Cryptocurrency Exchange Scam! What is Wash Trading?

What is wash trading?

Wash trading is a process whereby a trader buys and sells a token for the purpose of feeding misleading information to the market.

It can occur if coins are bought and sold at the same time by an exchange, bots, or other actors, in order to portray much higher trade volumes. This can influence coin price and market confidence.

In terms of exchanges it can also attract more users since more volume means quicker trades and usually better price. On top of that it also attracts new listings to the exchanges and those usually come with a very significant fee.

Because of that a lot of exchanges fake the volume in order to generate more income. On top of that a lot of scam exchanges try to attract users by faking volumes.

How is it detected?

It is possible to detect wash trading but it needs to be done on a case to case basis by analyzing a variety of factors.

Things like unique visitors per day and the percentage of unique access sessions as well as the order book liquidity is looked at. Correlation between trade volume and price volatility to determine something called "price-volume correlation" is often commonly used.

Last but not least any weird movement of the price and the changes in volume at also analysed and by all of these.

By analysing the data a list of trusted exchanges can be created. This was done by Blockchain Transparency Institute.

Who are the offenders?

There is a lot of offenders in this sector. In fact majority of exchanges are wash trading with only few exchanges having legitimate volume. Even the more popular exchanges are having some of the volume faked.

There is obviously a lot of exchanges that are not well known that report huge fake volumes: OEX, Coinbit, BitForex, Coinsbank, DOBI trade, BitMax, OOOBTC, RightBTC, BCEX, Simex, BitMart, ZB, EXX, CoinZest and many many more.

And the more known and trusted exchanges has been guilty of wash trading to some degree: Bithumb, OKEx, Huobi, HitBTC, Bibox, LBank, Digifinex, Coinbene and Bit-Z,

Which exchanges are legit?

Not all exchanges are wash trading however and there is a lot of exchanges that are actually legit. The major volume exchange without any wash trading were: Binance, Bitfinex, Upbit, Kraken, BitFlyer and Poloniex.

Some of the exchanges did a little bit of wash trading but still had majority of the volume legit, those were: Bittrex, Gate.io, Gemini, Coinone, Cex.io and Kucoin.

There are also smaller exchanges that didn't do or did very little of wash trading: COSS, BTC Markets, Bitso, Bancor, Coinrail, Kyber and many many more.

Also keep in mind that just becuse exchange doesn't wash trade doesn't mean its safe and legit.

Conclusion

A lot of exchanges are cheating the market to attract users and new listings. This is why there is so much fake volume happening.

You should avoid dodgy exchanges anyway and this test just proves that there are not many exchanges that can be trusted.

Binance, Kraken, Gemini, Coinbase Pro, Kucoin (if you hold KCS), COSS (if you hold COSS or CFT), Poloniex or Bittrex are one of the best ones to use. Decentralised exchanges are also a good option.

However even on trusted exchanges you shouldn't hold your coin permanently.