A cryptocurrency analyst has claimed that nearly 20%, or $3 billion, of cryptocurrency trading volumes are fake. They are the result of wash trading, a practice where actors sell to themselves to bloat size.
In an article and a tweet, Sylvain Ribes pointed to Chinese digital exchange operator OKex as the worst offender, suspected of faking more than 90% of its transactions. However, he said the result of his research is not related to price slippages in the digital currency space.
“A bit of wash trading and artificial volume inflation is to be expected in a thoroughly unregulated market.”
He explained that when he initiated his research, the aim was to determine how much the price would slip if he sold $50,000 worth of various virtual currencies on different exchanges. He then stumbled upon the fake volume as some of the results he got made no sense.
Ribes said he was surprised that prices dropped significantly in some cases despite the selling volume being minuscule.
In one example, a slippage of 10% to as high as 50% was noted when he sold $50,000 worth of cryptocurrencies on OKex – an exchange supposed to have a 24-hour trade volume amounting to tens of millions of dollars. He also observed that OKex was reporting an unusually large volume of digital currency trading, even bigger than major exchanges like Bitfinex.
"But it's the day and night cycle in China! I do not believe it speaks highly of OKex engineers that they actually reflected upon ways to make wash trading less conspicuous than a straight constant stream of trades, but all they could come up with was a perfect sine wave," he said.
To further test his theory, Ribes logged into OKex to observe its 24-hour trade volume and was surprised by the data he gathered.
"Indeed, they fake their volume in a laughingly obvious and artificial way. Real exchanges show spikes, dips, snowball effect on higher volatility. Not a chart out of a high school oscilloscope."
China has more fakes to offer
Apparently, the Bitcoin trade volume is not the only fake data coming from China.
In November, a memo from Sichuan Electric Power Co, a subsidiary of State Grid Corporation, said the company would pull the plug on mining pool operations but that turned out to be fake news.