Wash Trading Identified on Binance

Binance and Bitfinex Fail The Wash Trade Test – BTI


Binance and Bitfinex Fail The Wash Trade Test – BTI

Blockchain Transparency Institute released the “Market Surveillance Report – April 2019”, which follows up on the previous report released in December 2018.

The Institute is designed to act as a platform for a group of blockchain data researchers and enthusiasts aiming to increase transparency and trust in the crypto and blockchain sphere. This is the fourth report released since the BTI started this series, with the first one being released in August 2018.

Their methodology is based on deploying wash trade algorithms, which analyze 26 different data points before determining a wash trade. Accordingly, exchanges have started closing down accounts associated with wash trading since February 2019, after receiving suspicious data from the BTI.

During the first three months of the year, the BTI had inspected over 200 exchanges following requests from over 40 crypto projects. Reportedly, their reports saved these crypto startups around 150 bitcoins from identifying as the “wash trading” crypto exchanges.

So, what is wash trading? According to investopedia, “wash trading is a process whereby a trader buys and sells a security for the express purpose of feeding misleading information to the market”. It is considered illegal under the U.S. laws.

Read More: Is Kraken “Wash Trading and Offering Special Treatment” to Tether (USDT)?

A whole range of tactics are used by exchanges to fake their volume, such as “buying twitter followers and likes, filling up fake order books, mirror wash trading the largest exchanges with real volume, and trying to disguise their wash trading using various bot settings to not affect price.”

The BTI claim they identified more than 10% of wash trading on major crypto exchanges Binance and Bitfinex, thus placing both of them on the “unverified” list of exchanges. In response, Bitfinex claims its software is designed to catch wash trading in largest volume pairs, hence ignoring the lower and middle volume pairs.

“Exchanges which we have found under 10% wash trading over the past 30 days have been labeled as BTI Verified,” it is said in the report. Interestingly, both Binance and Bitfinex were amongst the three crypto exchanges that were identified by BTI in their December report not to be grossly wash-trading their volume.

The Institute doesn’t charge for the “BTI Verified” status, but it does charge for the service of sending data reports to clean up exchanges, to cover the costs of its workforce. After analyzing the available data, the BTI will conclude the process with verification of any exchange that has under 10% wash trading detected with no individual pairs wash trading over 15%.

For instance, top trading pairs on Bitfinex were deemed “clean” for more than 97% of the time, while the entire exchange hovered between 88% and 90%. Binance, on the other hand, is clean 85% to 90% of the time. However, smaller markets (around 30 pairs) are being used by market makers to conduct wash trading.

Picture 1: Top 12 exchanges by volume (Source: BTI)

“These 30 pairs, however, are wash trading between 25% and 75% of their total volume.”

The BTI index of verified exchanges includes such prominent exchanges as Coinbase, Upbit, Bittrex, Poloniex, Liquid, Kraken, Gate, Bitso, and Lykke. The report notes that Kraken has proved to be the cleanest exchange at over 99%, closely followed by Coinbase and Upbit, both higher than 97%.

The full rankings can be seen here.

“Some of these exchanges, as well as others which are not yet Verified, have already been using our data to review and shut down accounts which were found to be wash trading”, it was added in the report.

When the entire crypto market is analyzed, the wash trading volume is troublesome. Accordingly, around 90% of the volume reported by all exchanges on Coinmarketcap (CMC) is fake. The entire daily volume is reported at around $50 billion, however, when wash trading algorithms were deployed, only $4-5 billion survived the test.

For instance, 92% of bitcoin trading volume is wash trading. When the focus is shifted towards top 40 biggest exchanges, wash trades involving bitcoin droped to around 65%.

In March, Newconomy covered a report from Bitwise Asset Management, which also claimed that approximately 95% of the reported volume on CoinMarketCap is fake. Their findings were presented to the U.S. Securities and Exchange Commission (SEC) as the firm pushes its proposal to change rule to list and trade shares of the Bitwise Bitcoin ETF Trust.

“The vast majority of the reported volume is fake and/or non-economic wash trading,” claims Bitwise in its report.

Similarly to BTI, Bitwise found that “only” around 4.5% of reported trading volume on CMC is considered to be trustworthy, after analyzing the data from 81 exchanges that report more than a $1 million of bitcoin volume traded per day.