Did you know that in the wild world of cryptocurrency, fake volumes are like the glitter of the industry? They boost product popularity faster than a cat video goes viral!
wash trading schemes are like the cool kids in high school, manipulating rankings to look super popular and valuable, and in reality, it has nothing to do with the real supply and demand. It's like a popularity contest but with a ton of money involved.
Influence of Wash trading on the market.
Wash traders use algorithms to simultaneously buy and sell the same asset to create artificial trading volume. This, in turn, can lead to artificial price changes, which do not reflect the actual supply and demand dynamics.
When investors learn about wash trading, they lose confidence in the exchange and tokens listed there. It's a deceptive practice, aiming to manipulate perceptions and rankings for short-term gains while risking long-term trust and integrity.
Wash trading, or more accurately, cheating investors, creates a false sense of liquidity and demand. This practice is carried out by both exchanges and token issuers through their market makers, which are also called “market fakers”. They use algorithms to pump volumes. Unfortunately, this casts shadows over the whole industry.
Does wash trading affect prices?
Crypto wash trading involves creating fake trading volumes, giving the impression of high market activity for a couple of reasons:
to attract new investors.
to artificially influence the market price of an asset.
to meet the requirements of top-tier exchanges that require a certain level of trading volume on other platforms to list a token.
One reason for wash trading is inflating the asset price.
Is wash trading legal in crypto?
Crypto-wash trading is a form of market manipulation that is illegal in traditional markets. However, due to the lack of effective regulation, it occurs on a large scale in crypto.
According to some reputable reports in the industry wash trading remains a critical issue in crypto markets. It is a common occurrence on unregulated exchanges, with an estimated average of 75% of reported volume being fake. In some exchanges, this figure exceeds 90%. The researchers reveal the dark side of crypto exchanges, exposing their dishonest practices to boost rankings and attract more investors.
What is an example of a wash trade?
Many of you are probably wondering how to detect wash trading in crypto. Today, artificially created volumes can often be detected without complex algorithms. You can quickly discern a token’s true condition by observing market metrics. Unfair practices are easy to recognize. When there is low or no market depth (+-2% depth) with a high trading volume, there is an increased probability that the reported volume may not reflect actual trading activity.
How do you identify fake volume?
If you look at the table below, you will easily recognize that a low liquidity position like $187, for example, cannot make a volume of more than $14 million in 24 hours! Traders also look for this kind of pattern. When they see this, not only will they not invest in the token, but they will also lose confidence in the project and not come back again!
Despite clear evidence, wash trading remains common due to pressure from exchanges and the desire for rapid growth. However, focusing on the project and its community and investing in marketing and development, can also result in sustainable, organic growth.
The difference is huge – long-term investment brings lasting profits, whereas short-term scams can only yield short-term results but ruin the reputation of the industry and lose the trust of its investors.
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