Exceptionally honest deception – Newspaper Kommersant No. 5 (7450) dated 01/13/2023

Most of the transactions of most of the largest crypto exchanges, as the US-China study suggests, are manipulative transactions of groups of related owners prohibited in most jurisdictions of the world. Economists at Cornell and Tsinghua Universities believe that the annual turnover of trillions of dollars on the main unregulated crypto exchanges is 54.3% “laundering trade”, for second-tier exchanges this figure is estimated at 81.8%, for regulated crypto exchanges, a possible estimate of their share – until 3%.

The preprint of the article “Crypto Wash Trading” in the NBER publication series was published at the end of December 2022. The authors — Lin William Tsung from Cornell University in the US, Ke Tang and Yang Yang from Beijing Tsinghua and Xi Li, who works in the UK — using a commercial database of the 29 largest crypto exchanges in the world in different jurisdictions, made an attempt to estimate the share of the so-called wash trading in their turnover. . In Russia, there is no well-established transfer – these are multiple sales of the same asset to each other by related or one owner, in most jurisdictions this kind of “overclocking” is a classic and well-known manipulation of exchange rules (in the USA, for example, they have been banned since 1936). The authors analyzed data from both regulated (only 3% of the estimated turnover – Coinbase, BitStamp, Gemini, BitFlier, Tibit) and unregulated (Binance, Huobi and lesser known) crypto exchanges for the four most popular crypto assets – BTC, ETX, LTC, XRP.

Digital technologies and features of the cryptocurrency market make the opportunities for masking wash trading very wide, and it has been repeatedly stated in the economic literature that the share of manipulations on crypto exchanges can be high. The value of Lin, Ke, Yang, and Xi’s work lies in the first model estimate of this share on real data: it seems to have amazed the authors of the work as well – these are the majority of transactions. The research technology of this kind was developed quite a long time ago, certain patterns of behavior of the parties are typical for wash trading transactions, including operations with “round numbers”, especially since economists in this case had a comparable array of data on transactions on regulated crypto exchanges, where, presumably, , manipulative operations accounted for less than 3%. On average, the authors believe, “selling an asset to oneself” to falsify exchange interest in a particular asset is 77.5% of the analyzed transactions, on the “first level” exchanges (top 700 among SimilarWeb sites) it is less, 53.4%, on other crypto exchanges – 81.8%. The turnover of crypto-exchanges in the analyzed period amounted to about several trillion dollars.

The authors did not even give recommendations, limiting themselves to simple references to the need (often technically unrealizable) to regulate the trade in crypto assets in the world and a reference to the opinion of the famous economist Nouriel Roubini, who in 2018 announced the “initially fraudulent nature” of the crypto industry. In reality, an exchange where at least half of the transactions are manipulative in terms of the global financial industry can hardly be a trading platform that establishes (in the same sense as conventional exchanges) a fair balance of supply and demand for an asset. In fact, the work demonstrates that wash trading, which apparently involves most of the major market participants, is not so much a parasitism on some larger and “healthy” activity as the main occupation. But the problem is that the study demonstrates, among other things, the fundamental difference between crypto assets and commodities on regulated exchanges: regulating them with standard rules, where technically possible, will simply change their nature (through a change in the pricing method, now defined by the “ordinary” financial world as fraudulent ) and, possibly, the crypto industry itself, which, along with anonymity, will lose some of its consumer appeal, if not all.

Dmitry Butrin