Crypto Wash Trading
Read the paperopens www.nber.org in a new tab
What they found
The authors developed statistical tests to detect fake volume on crypto exchanges, using regularities that appear in genuine trading (Benford's law for first digits of trade sizes, clustering at round numbers, and the tail distribution of trade sizes). Applied to 29 major exchanges in 2019, regulated exchanges passed the tests while most unregulated ones failed, with an estimated average of over 70% of reported volume on unregulated exchanges being wash trading. Wash trading was linked to exchange rankings on data aggregators and to short-term price effects.
What you can use
- Most reported volume on unregulated crypto exchanges in 2019 was fake, and the fakery was worse on exchanges that were fighting for rankings.
- Volume-based signals from unregulated venues are unreliable; prefer regulated exchanges' data for analysis.
- Simple statistical fingerprints (digit distributions, round-number clustering) can flag suspicious venues.
Caveats
Snapshot from 2019; some exchanges have since improved or shut down. The methods estimate wash trading indirectly. Free NBER version linked.
Tags: crypto, wash-trading, exchanges, volume
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.