The National Bureau of Economic Research (NBER) recently issued a working paper titled “Crypto Wash Trading.” The study of 29 unregulated exchanges found that, on average, more than 70% of the volume within the platforms are wash trades. Statistical and behavioural patterns were used to identify which transactions were legitimate or not.
The recent research article by NBER asserts that nearly three out of four transactions in unregulated exchanges are false, with exchanges becoming a focus as the FTX scandal unfolds.
The researchers discovered that the wash trade volume on some exchanges might reach up to 80% of the total trading volume. According to the researchers, wash deals accounted for about 80% of the entire trade volume in twelve “tier-2 exchanges.” According to the experts, these projections correspond to wash trading of more than 4.5 trillion dollars in spot markets and more than 1.5 trillion dollars in derivatives markets in just the first quarter of 2020.
“These estimates translate into wash trading of over 4.5 trillion USD in spot markets and over 1.5 Trillion USD in derivatives markets in the first quarter of 2020 alone.”
The researchers claim that wash trading has certain short-term rewards. According to the report, fraudulent transactions frequently affect how exchanges rank on data and analytics websites like CoinMarketCap. Fake transactions also have a short-term impact on the pricing of cryptocurrencies within the exchanges.
However, executives working for upcoming centralised exchanges (CEXs) have expressed their thoughts on how they could regain user trust after the FTX collapse eroded people’s trust in CEXs on various platforms. Most believe that the business will revive.
While everything is going on, the FTX scandal is still making headlines because wallets connected to Alameda Research have been active, moving over $1.7 million worth of assets through cryptocurrency mixers. Days after Sam Bankman-Fried, the former CEO of FTX, was freed on a $250 million bond, the movements were noticed.