《BIMSA applied mathematics》Weekly Seminar
Crypto Wash Trading
Speaker: Tang Ke, Professor and Chair of The Institute of Economics, School of Social Sciences, Tsinghua University.
Abstract: To investigate whether centralized exchanges of cryptocurrencies engage in wash trading, we examine first-significant-digit distributions, size clustering, and tail distributions of transactions involving various cryptocurrencies such as Bitcoin and Ethereum, at 3 regulated and 26 unregulated major crypto exchanges. Most unregulated exchanges, especially those less prominent, exhibit patterns unexplained by investors’ activities; all regulated exchanges feature trading patterns consistent with statistical and behavioral benchmarks from traditional financial markets, clearly demonstrating the benefit of regulation. We estimate that unregulated exchanges on average fake over 70% of their total reported volume, amounting to over one trillion dollars per month. We also document that wash trades appear to improve exchange ranking and how exchange age, user base, reliance on referral web traffic, and competition influence the extent of wash trading. Finally, we discuss the regulatory implications of such manipulations in the emerging crypto sector.