70% OF UNREGULATED EXCHANGE TRANSACTIONS ARE WASH TRADING: NBER STUDY

Last updated: June 19, 2025, 19:20 | Written by: Dan Larimer

The cryptocurrency world, already known for its volatility and inherent risks, has been shaken by another revelation. With exchanges becoming a focus as the FTX fiasco continues, a new research paper suggested that almost three out ofAs the dust settles from the FTX collapse and scrutiny intensifies on crypto exchanges, a recent study from the National Bureau of Economic Research (NBER) has dropped a bombshell: a staggering 70% of trading volume on unregulated crypto exchanges is likely the result of wash trading. Posted by u/Consistent_Ad_4248 - 1 vote and no commentsThis practice, where a trader simultaneously buys and sells the same asset to create artificial volume and mislead investors, is rampant and has serious implications for the integrity of the digital asset market. Some 70% of unregulated cryptocurrency exchange transactions are wash trading. That's according to a new study from the National Bureau of Economic Research (NBER).The NBER's findings, detailed in a working paper titled ""Crypto Wash Trading,"" analyzed 29 unregulated exchanges and revealed that trillions of dollars annually are fabricated through this deceptive technique.This artificially inflated volume isn't just a harmless illusion; it distorts prices, improves exchange rankings, and ultimately deceives investors seeking a fair and transparent market. 70% of unregulated exchange transactions are wash trading: NBER study 24hourscrypto Coin Telegraph 0 With exchanges becoming a focus as the FTX fiasco continues, a new research paper suggested that almost three out of four transactions in unregulated exchanges are fake.What drives this behavior, and what can be done to protect yourself from its effects?Let’s delve into the details of this concerning trend and explore what it means for the future of cryptocurrency trading.

Understanding Wash Trading in the Crypto Landscape

Wash trading, at its core, is a manipulative practice designed to deceive.It's like creating a ghost town and pretending it's a bustling metropolis.In the context of cryptocurrency, it involves a trader, or more often, an exchange itself, executing simultaneous buy and sell orders for the same asset.This creates the illusion of high trading volume and liquidity, attracting unsuspecting investors who believe they are entering a vibrant and active market. If you needed another reason to be wary of the volatile world of cryptocurrency trading, a new study has found that 70% of all transactions on unregulated exchanges are wash trades, meaning they re fake and intended to mislead people about the marketplace s activity.But why would anyone engage in such a practice?

Inflated Exchange Rankings: Higher trading volume translates to higher rankings on cryptocurrency data aggregators like CoinMarketCap and CoinGecko. and transaction tail distributions on unregulated exchanges reveal rampant manipulations unlikely driven by strategy or exchange heterogeneity. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume. We further document how these fabricated volumesThese rankings are crucial for attracting new users and boosting the exchange's reputation.
Short-Term Price Manipulation: Wash trading can create artificial price movements, allowing manipulators to profit from short-term gains.Imagine inflating the price of a token to lure in buyers, only to dump it later, leaving others holding the bag.
Attracting Legitimate Traders: A high-volume exchange appears more attractive to genuine traders, who seek liquidity and ease of execution.Wash trading essentially creates a false sense of security and opportunity.

How the NBER Study Uncovered the Truth

The NBER's ""Crypto Wash Trading"" study employed sophisticated statistical and behavioral analysis to identify wash trades.Researchers examined transaction patterns, volume distributions, and other anomalies across 29 unregulated exchanges. The study suggested that wash trading has some short-term impact on crypto prices within unregulated exchanges. The study suggested that wash trading has some shortBy identifying transactions that exhibited characteristics inconsistent with legitimate trading behavior, they were able to quantify the extent of wash trading on each platform.The study’s rigorous methodology provides a stark and unsettling picture of the prevalence of manipulation in the unregulated crypto exchange space.

The researchers meticulously analyzed various factors, including:

Transaction Tail Distributions: Analyzing the frequency and size of trades to identify patterns indicative of artificial volume.
Behavioral Patterns: Identifying accounts that repeatedly buy and sell the same asset within short timeframes, a hallmark of wash trading.
Statistical Anomalies: Detecting unusual spikes in volume that couldn't be explained by legitimate market activity.

The Impact of Wash Trading on the Cryptocurrency Market

The consequences of widespread wash trading extend far beyond mere deception. A working paper titled Crypto Wash Trading was recently published by the National Bureau of Economic Research (NBER). Using statistical and behavioral patterns to determine which transactions were legitimate or not, the paper studied 29 unregulated exchanges and came to the conclusion that, on average, more than 70% of the volume withinIt undermines the integrity of the entire cryptocurrency market, eroding trust and hindering its long-term growth. A working paper titled Crypto Wash Trading was recently published by the National Bureau of Economic Research (NBER). Using sta With exchanges becoming a focus as the FTX fiasco continues, a new research paper suggested that almost three out of four transactions in unregulated exchanges are fake.The NBER study highlights several key impacts:

Distorted Prices: Artificial volume can significantly skew the price of a cryptocurrency, leading to inaccurate valuations and misinformed investment decisions.
Loss of Investor Confidence: When investors realize they are trading in a manipulated market, their confidence plummets, leading to decreased participation and market instability.
Hindered Institutional Adoption: Institutional investors, who require transparency and regulatory oversight, are likely to shy away from markets plagued by wash trading.
Unfair Competition: Legitimate exchanges that adhere to ethical practices are disadvantaged by unregulated platforms that artificially inflate their volume and attract users through deceptive means.

Wash trading can also create a feedback loop, where inflated volume attracts more wash trading, further exacerbating the problem. The National Bureau of Economic Research (NBER) published a working paper titled Crypto Wash Trading, which studied 29 unregulated exchanges and found that an alarming 73% of the volume on these platforms is made up of fake transactions.It's a vicious cycle that requires intervention to break.

Why Unregulated Exchanges are Hotbeds for Wash Trading

The NBER study specifically focused on unregulated cryptocurrency exchanges because these platforms lack the oversight and enforcement mechanisms necessary to deter manipulative practices. 70% of unregulated exchange transactions are wash trading: NBER studyIn the absence of robust regulatory frameworks, exchanges have a greater incentive to engage in wash trading to boost their rankings and attract users. NBER sampled 29 unregulated crypto exchanges for the research and found out that wash trades accounted for more than 70% of the volume of these exchanges. Wash trading is a process where a trader buys and sells a security to create misleading information about the commodity.The lack of transparency and accountability creates a breeding ground for fraudulent activity.

Key factors contributing to the prevalence of wash trading on unregulated exchanges include:

Lack of Regulatory Oversight: No independent body is monitoring trading activity or enforcing rules against manipulation.
Weak KYC/AML Procedures: Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures are often lax, making it easier for individuals to create multiple accounts and engage in wash trading.
Conflicts of Interest: Exchanges may have a vested interest in inflating their volume, as it directly benefits their bottom line.
Limited Transparency: Information about trading activity and order book data is often opaque, making it difficult to detect wash trading.

Protecting Yourself from the Dangers of Wash Trading

While regulators work to address the issue of wash trading, it's crucial for individual investors to take proactive steps to protect themselves. 18 votes, 18 comments. 8M subscribers in the CryptoCurrency community. The leading community for cryptocurrency news, discussion, and analysis.Here are some practical tips to mitigate your risk:

Choose Regulated Exchanges: Opt for cryptocurrency exchanges that are regulated by reputable authorities.These platforms are subject to stricter oversight and are more likely to have robust anti-manipulation measures in place. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume. We further document how these fabricated volumes (trillions of dollars annually) improve exchange ranking, temporarily distort prices, and relate to exchange characteristics (e.g, age and userbase), market conditions, and regulation.Look for exchanges that comply with KYC/AML regulations.
Do Your Research: Before trading on any exchange, thoroughly research its reputation, trading volume, and regulatory compliance.Be wary of exchanges with unusually high volume or a lack of transparency.
Be Skeptical of High Returns: If an exchange or a particular cryptocurrency offers returns that seem too good to be true, it's likely a red flag.Wash trading can create artificial price movements that lure in unsuspecting investors.
Analyze Trading Volume: Examine the trading volume of the cryptocurrencies you're interested in.Look for consistent and organic growth, rather than sudden spikes or erratic fluctuations.
Use Limit Orders: Limit orders allow you to specify the price at which you're willing to buy or sell an asset.This can help protect you from being caught in a wash trading scheme, where prices can be artificially inflated.
Diversify Your Holdings: Don't put all your eggs in one basket. 70% of unregulated exchange transactions are wash trading: NBER study. Decem. Analyst Predicts 4,000% Uphill RunDiversify your cryptocurrency portfolio to reduce your overall risk.
Stay Informed: Keep abreast of the latest news and developments in the cryptocurrency market. With exchanges becoming a focus as the FTX fiasco continues, a new research paper suggested that almost three out of four transactions in unregulated exchanges are fake. A working paper titled Crypto Wash Trading was recently published by the National Bureau of Economic Research (NBER).Be aware of the risks associated with unregulated exchanges and wash trading.

Questions to Ask Before Using an Exchange

Before entrusting your funds to a cryptocurrency exchange, ask yourself these critical questions:

Is the exchange regulated by a reputable authority?
What KYC/AML procedures does the exchange have in place?
How transparent is the exchange about its trading volume and order book data?
What security measures does the exchange employ to protect user funds?
What is the exchange's reputation among other traders and industry experts?

The Regulatory Response to Wash Trading

Regulatory bodies around the world are increasingly aware of the problem of wash trading in the cryptocurrency market and are taking steps to address it.However, the lack of a unified global regulatory framework poses a significant challenge. A working paper titled Crypto Wash Trading was recently published by the National Bureau of Economic Research (NBER). Using statistical and behavioral patterns to determine which transactions were legitimate or not, the paper studied 29 unregulated exchanges and came to a conclusion that, on average, more than 70% of the volume within theDifferent jurisdictions have different approaches to regulating cryptocurrencies, which can create loopholes that allow wash trading to thrive.

Some of the measures being considered or implemented by regulators include:

Enhanced Oversight of Exchanges: Imposing stricter regulatory requirements on cryptocurrency exchanges, including enhanced KYC/AML procedures, regular audits, and reporting obligations.
Defining and Prohibiting Wash Trading: Clearly defining wash trading as a form of market manipulation and explicitly prohibiting it under securities laws.
Enforcement Actions: Taking enforcement actions against exchanges and individuals found to be engaging in wash trading.
International Cooperation: Working with other jurisdictions to develop a coordinated approach to regulating cryptocurrencies and combating wash trading.

The regulatory landscape is constantly evolving, and it's likely that we will see more stringent regulations in the coming years aimed at curbing wash trading and other forms of market manipulation.

The Future of Cryptocurrency Exchanges: Regulation and Transparency

The future of cryptocurrency exchanges hinges on regulation and transparency.As the market matures, investors will increasingly demand greater accountability and oversight.Exchanges that prioritize compliance and transparency will be best positioned to attract institutional investors and build long-term trust.The industry needs to move away from the Wild West mentality and embrace a more regulated and transparent environment.

Key trends that are likely to shape the future of cryptocurrency exchanges include:

Increased Regulatory Scrutiny: Regulators will continue to ramp up their oversight of cryptocurrency exchanges.
Greater Institutional Adoption: Institutional investors will play a larger role in the cryptocurrency market, driving demand for regulated and transparent exchanges.
Technological Advancements: New technologies, such as blockchain analytics and artificial intelligence, will be used to detect and prevent wash trading.
Decentralized Exchanges (DEXs): DEXs, which operate without a central intermediary, may offer a more transparent and less susceptible to manipulation alternative to centralized exchanges.However, DEXs also present their own set of challenges, including liquidity issues and regulatory uncertainty.

Conclusion: Navigating the Crypto Market with Caution

The NBER study's findings are a stark reminder of the risks associated with unregulated cryptocurrency exchanges.The prevalence of wash trading, with a staggering 70% of transactions potentially being fake, underscores the need for caution and due diligence.While the allure of high returns can be tempting, it's crucial to prioritize security and transparency. With exchanges becoming a focus as the FTX fiasco continues, a new research paper suggested that almost three out of four transactions in unregulated exchanges are fake. A working paper titledBy choosing regulated exchanges, conducting thorough research, and being skeptical of unrealistic promises, investors can significantly reduce their risk of falling victim to market manipulation.The cryptocurrency market has immense potential, but it's essential to navigate it with a critical eye and a healthy dose of skepticism. With exchanges becoming a focus as the FTX fiasco continues, a new research paper suggested that almost three out of four transactions in unregulated exchanges are fake. A working paper titled Crypto Wash Trading was recently published by the National Bureau of Economic Research (NBER). Using statistical and behavioral patterns to determine which transactions were [ ]Remember, if it sounds too good to be true, it probably is. The key takeaway is to prioritize regulated exchanges and do your own research to protect your investments. The future of crypto depends on building trust and integrity within the market, and that starts with informed and cautious investors.