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Wash Trading Market Manipulation – Centralized Exchanges

Towards the end of last week, Bitwise – a leading Crypto asset management firm – released the presentation it made to the SEC on the scale and depth of the alleged wash trading and the downstream effect of inflated Bitcoin trading volumes on cryptocurrencies. Bitwise performed a comprehensive and investigative review of trade activity on leading crypto exchanges and uncovered some ugly facts about fake trading volumes on crypto exchanges. The review was performed in response to the SEC’s concerns over the possibility of market manipulation and price discovery in Bitcoin markets, a major roadblock that is delaying the SEC’s approval of Bitcoin ETF, and how Bitwise plans to address those concerns by identifying reliable exchanges with kosher volumes from which the prices can be sourced.

According to Bitwise, the legit trading volume on crypto exchanges is only a tiny fraction of the total volume reported by leading websites like coinmarketcap.com. Of the $6B daily trading volume reported, only $273 million is the actual trading volume, putting the daily actual turnover at 0.39%. This is in line with Gold’s daily turnover of 0.55%, while the turnover based on the reported volume of $6B results in a sketchy 8.6% daily turnover for Bitcoin. Bitwise’s analysis on trading volumes included comparing crypto exchanges based on Trade size histograms, Volume spiking alignment and Spread patterning. The primary reason why unregulated crypto exchanges try to inflate trading volume is because they have more negotiating power with Altcoins/ICOs for charging high listing fees. Inflated trading activity justifies the $1-3 million fees that Altcoin projects pay to list their coin on the platform. And most of the trading volume manipulation seems to happening in obscure locations outside the US. US-domiciled exchanges account for nearly 30% spot trading volume, as opposed to the <1% share that US has based on reported volume.     

US-domiciled exchanges trading volume

Additional analysis performed by Bitwise indicates that the spreads between exchanges are tighter than what it seems like. The top 10 legitimate exchanges are almost arb efficient as the price spread between exchanges is well within the arbitrage band when you account for trading fees, volatility and hedging costs.

The top 10 legitimate exchanges
Source: Bitwise

Meanwhile in Crypto Wonderland….

“Bitmain’s IPO Application Expired” Bitmain’s hopes for an initial public offering (IPO) have been slashed after the cryptocurrency firm’s application to list on the Hong Kong Stock Exchange officially expired. Its application officially lapsed on Tuesday, six months after it was first submitted. Founded in 2013, headquartered in China, and credited with being one of the largest manufacturers of cryptocurrency mining equipment, Bitmain can re-submit its application but it would need to provide additional financial information beyond what it included in its original filing.

“Another Crypto Exchange Hack” Singapore-based exchange DragonEx says it has been hacked for an undisclosed amount in a number of cryptocurrencies. DragonEx announced the news on its official Telegram channel on Monday, stating that, on Sunday, March 24, it had suffered a cyberattack that saw cryptocurrency funds owned by users and the exchange “transferred and stolen.” No information has yet been provided on the value of the losses. On Sunday, apparently as the breach was first being discovered, DragonEx first took its platform offline saying it was upgrading its systems.

“Another Crypto Exchange Rumored to Have Been Hacked” Cryptocurrency exchange Coinbene, ranked 16th on CoinMarketCap by adjusted volume, has announced it is undergoing maintenance on Tuesday, March 26, as the crypto industry discusses rumors that the exchange has been hacked. The official Twitter account of Coinbene Global has responded to a user nicknamed Crypto James, who claims that his deposits have been pending for an hour and insists the exchange has suffered a hack, as the maintenance had not been previously announced.

“Crypto Wallet for WhatsApp”Wuabit is a cryptocurrency wallet accessible via a chat interface in WhatsApp. The developers describe it as ‘software agent’ powered by specialised AI. Users simply type in commands like ‘send 0.05BTC to Vera’ and Wuabit will send the cash. By using a service as popular as WhatsApp, Wuabit hope to propel crypto payments further into the mainstream. The public beta is due to start next month. Mainstream use of cryptocurrencies like Bitcoin is growing but many experts say a lack of understanding among the public is hampering adoption.

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