Cryptocurrency exchanges ought to be secure and transparent in all their dealings. Their sole existence is to return sanity into the financial ecosystem, and aid in decentralized finance. By eliminating central players in traditional fiat, decentralization will democratize and give economic power back to the average user. This is the role that Aurix Exchange plans to play — to build a fully transparent, secure, and trustless ecosystem for deploying Fintech solutions.
Wash trading on Bithumb; A criminal phenomena
However, in 2018, suspicious activities were taking place across exchanges. Some of these activities were allegedly linked to pumping trading volume through illegal trading. This illicit trading created a storm of fake trading volumes on the major Korean Exchange, Bithumb, which according to Alex Krugger, took the following chart pattern.
(Source: Twitter Alex Krugger)
Kruger’s Twitter commentators illustrated this as a fundamental problem caused by wash trading players. Wash trading is a criminal type of trading whereby brokerage platforms and traders collude to feed misleading information to the market in order to make profits. These players gain from the market by exerting fake volume on a stock and ultimately pumping its price.
The crypto traders noted the suspicious activities taking place on Bithumb exchange order books and said they were allegedly linked to promoting a new offer they’d created. Krugger pointed out over $250 million fake volume trades that had taken place on the exchange and how the players colluded every day at 11 AM KST (Korean Standard Time), between August 25th and September 1st.
What offer was Bithumb trying to promote through the scheme?
But what offer was Bithumb trying to promote through the scheme? Bithumb offered to reward new and existing traders with 120% fee payback through airdrop tokens while the traders were, however, limited to a maximum daily trading volume of $900,000.
Kruger supported his point by posting the following estimation on his Twitter account.
O.15% taker (trading fees.) Wash trading occurs by executing two opposing limit orders and the colluders’ total fees for those particular traders become 0.3%. This makes 0.36% for a 120% rebate. A wash trader supposedly trades at least KRW 278 billion for them to take the complete KRW 1 billion rebate.
The problem with exchanges inducing such pump schemes is tricking investors who rely on volume-induced trading indicators. They could jump on a digital asset, thinking it is a bullish trend, whereas it is only being pumped with fake trading volumes.
What should traders do instead?
Traders should always remain vigilant of suspicious activities taking place on exchanges. An exchange encouraging wash trading neutralizes the entire role of decentralization in the financial ecosystem. Good exchanges are transparent and straightforward. They ensure traders reap from their sweat and will never conspire to cheat the system. Aurix Chain Ecosystem CEO, Mahjed Mohsen, believes in the transparency and truthfulness of the blockchain and wants to bring that into financial solutions.