Study Finds Rampant Money Laundering On Unregulated Crypto Exchanges


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(Kitco News) – A new study by US researchers has discovered that cryptocurrency exchanges operating with minimal or no regulation engage in money laundering to boost profits. National Bureau Of Economic Research. .us

In The ‘Crypto Wash TradingAuthors, ‘working paper Lin William Cong, Xi Li, Ke TangAnd Yang Yang The analysis of cryptocurrency transaction information was done in the TokenInSight database from 29 major exchanges including Binance, CoinbaseAnd HuobiYou can also find lesser-known exchanges. Exchanges From July 9 November 3, 2019, for evidence of laundering exchange

According to the authors, wash trading refers to “investors simultaneously buying and selling the same financial assets to create artificial market activity,” This can cause price, volume and volatility distortions, which in turn affect investor confidence and participation. Investors in financial markets.

The Exchanges were selected based on their ranking on 3rd-party websites and representativeness. They were also ranked for API compatibility. Tier 1 (ranked in top 700 on SimilarWeThe finance/investing section of is available here Tier 2 (all ranked below the top 960). The Trading was the focus of these authors Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) Ripple (XRP), The four most traded cryptocurrency against the US dollar at that time.

To The authors used washout trading patterns to detect them. “multiple approaches” They are unlikely to be affected. “sparse trader strategies, exchange characteristics, or asset class specificities.”

“Our first key finding is that wash trading exists widely on unregulated exchanges, but is absent on regulated exchanges,” They wrote. “We consistently found anomalous trading patterns only on unregulated exchanges, with Tier 1 exchanges failing over 20% of tests and Tier 2 exchanges failing over 60%.”

In In addition to identifying the exchanges that engage in wash trade, the authors also calculated how much wash trading accounted for in each exchange’s total transaction volume.

“We found that wash trade volume, on average, is as high as 77.5% of total trade volume on unregulated exchanges, with a median of 79.1%,” They wrote. “Notably, it is estimated that wash trades on the twelve Tier 2 exchanges account for over 80% of total trade volume, which is still over 70% after accounting for observable exchange heterogeneity.”

The Authors wrote that this percentage represents more than $4.5 Trillion in laundered transactions on spot markets and more then $1.5 Trillion in derivatives markets in just the first quarter 2020.

They We also measured the effect of wash trading on an exchange’s ranking. Using Historical ranking and trading volume data from CoinMarketCap. The authors showed that exchanges with 70% of their total volume reported as laundered trade moved up 46 places in the rankings.

They Also, wash trading on an exchange is positively related to the prices of listed cryptocurrency in the short-term. More established exchanges have more users and do less wash trading than less well-known exchanges. “have incentives to short term to wash trade without drawing too much”. You get a lot of attention. They Added that wash trading can be predicted positively by yields, but negatively by price volatility.

The The authors stated that they did not see any evidence of laundering activities on regulated markets. “While current trading incentives and grading systems fuel rampant wash trading on unregulated exchanges, regulated exchanges, which have committed considerable resources to compliance and license acquisition and face severe penalties for market manipulation, they do little wash trade,” They wrote.

They Conclusion: This study is informative. “a cautionary tale for regulators around the world” This highlights the importance regulation in emerging industries and the importance to adjust volumes to account wash trade in other studies. “the utility of statistical tools and behavioral

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