Crypto Wash Trading: How & Why

All trading exchanges rely on the liquidity of their assets to be attractive to investors.

Exchanges rely on the liquidity of their assets to be attractive to investors, who will in turn attract more investors and so on. The more liquid an asset is, the more attractive it is for investors. A highly liquid asset can be easily bought or sold without affecting its market price. For example: if you have 10 million dollars that you want to invest in stocks but there are only 100 stocks available for purchase then your money would not be very useful because there aren’t enough shares available at any one time to meet investor demand. On the other hand if there were 1000 different companies with shares available then it would be easy for someone like you (with 10 million dollars) to buy or sell any amount at any given time without affecting prices negatively or positively so much as they would do if there were only 100 companies with shares available.

Why wash trading on crypto exchanges is a big problem

In traditional markets, wash-trading tends to not be a big issue due to market participants having better access to information and trading execution. They have a better understanding of the companies they are investing in, as well as their financials, so they can make more informed decisions about what to buy or sell. This is also true for traders who have access to sophisticated trading tools like algorithmic orders or dark pools that help them execute large orders without affecting the market.

However, there isn’t much information available about cryptocurrency companies on the internet — at least not enough for investors to base their trades on when they’re putting money into crypto assets blindly (and without doing any kind of research). As such, traders often end up making decisions based on price alone — which means that shallow-pocketed investors can easily manipulate those who don’t know any better into buying or selling certain coins at inflated prices by sending out fake buy/sell signals using bots running bots with other bots…

Crypto is still very immature

The crypto market is immature and highly speculative, with participants often relying on news or social media. As a result, there’s a high level of uncertainty around the value of cryptocurrencies. This uncertainty can lead to people making poor investment decisions. In addition, because cryptocurrency isn’t regulated by any central authority or government body (like the SEC), it can be difficult to verify whether information sources are reliable.

Wash-trading may be harming legitimate cryptocurrency trading

Because of the accessibility and transparency of crypto trading data, wash-trading is becoming a serious issue. In traditional markets such as stocks and bonds, there are mechanisms in place to prevent it from happening. For example, exchanges require that traders have at least $50k USD in their accounts before they can begin trading. This prevents a person from creating an account with one penny and then buying millions of dollars worth of stock because they know that no one will buy it back from them (there is no way for them to enforce this rule on these small amounts).

However: in cryptocurrency exchanges like Binance, Kucoin and Huobi Pro there are very few restrictions on who can trade on their platform – meaning that someone could open up an account with just $0.01 worth of BTC or ETH (or any other cryptocurrency) and begin making huge trades instantly without anyone noticing or caring! The only catch? You’ll need to wait several weeks before your “funds” become available again…

How it works

Wash trading is an illegal form of trading. Trading with yourself to create the illusion of market activity is a way to manipulate market prices and make trades less transparent. It’s also known as circular trading or cyclical selling and buying, but it can be done in any asset class, from stocks to bonds, from currencies to digital tokens.

In a nutshell: if you buy your own stock (or other asset) and then sell it at a higher price later on, there’s no real benefit for investors because they can’t take advantage of this activity since we know what happened before they ever had access to data about these activities. It’s just one person moving money around instead of actually adding anything meaningful into circulation or bringing more value into their company through increased purchases by others who might want shares after seeing signs that confidence was returning back into markets where people were once scared away because they felt like nothing was safe anymore due to all the fraud taking place across different sectors globally!

Recently, with the rise of cryptocurrency, another form of trading fraud known as wash-trading has surfaced which is problematic for investors. This form of market manipulation is a type of fraud in which an investor enters into a transaction with himself or herself to create an artificial trade volume.

Several traders are involved in this kind of fraud and even an exchange can be partaking in it by manipulating its own platform.

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