Crypto Wash Trading • Hacker News Board

Re: Crypto Wash Trading

#11

Post by realce » Fri, Nov 19, 2021, 4:54 PM UTC

rossdavidh wrote: post #2

Can somebody explain to a crypto-naif what "wash trading" means here?

You're the buyer and seller in some transaction. You use it to froth the volume of the asset, making it look like it's a vibrant marketplace with lots of buyers and sellers, but really it's just the Dump It guy and you.

Re: Crypto Wash Trading

#12

Post by omellet » Fri, Nov 19, 2021, 4:55 PM UTC

rossdavidh wrote: post #2

Can somebody explain to a crypto-naif what "wash trading" means here?

It's a way to fraudulently pump the price (or lower the price) of a security. One person with two accounts can keep trading back and forth with themselves, and since crypto exchange know-your-customer measures are trivial or nonexistent, it's very easy to get away with.

Re: Crypto Wash Trading

#13

Post by AutumnCurtain » Fri, Nov 19, 2021, 4:55 PM UTC

rossdavidh wrote: post #2

Can somebody explain to a crypto-naif what "wash trading" means here?

A "wash trade" is a trade which generates no value because it represents a swap in kind. For example, if I sell a broad market ETF like VTI and buy a nearly identical asset at the same price from a different firm, that could be a "wash trade" for tax purposes (simplifying this, but this is basically the gist). In the context of crypto transactions, it's typically referring to trades which are just shifting the same assets through a cycle of accounts without representing meaningful transactions. For a crypto real world example, see: https://mobile.twitter.com/MarcusFongNFT/status/145391172161...

Re: Crypto Wash Trading

#14

Post by dragontamer » Fri, Nov 19, 2021, 4:59 PM UTC

rossdavidh wrote: post #2

Can somebody explain to a crypto-naif what "wash trading" means here?

When you trade a any security to yourself (or someone closely related to you) to give the illusion of the price going up. (EDIT: Well... it could be for any reason. But illusion of price going up is one such application of the strategy).

Lets say you invent a new NFT. You sell the NFT to __yourself__ for $100. Then, you sell the NFT to yourself (again) for $200. Finally, you sell the NFT to yourself for $1000. Then you go to the public and say "Look, my NFT has grown 1000% in the past week, you should get in on it!!"

Then they buy the NFT from you for $500. Then suddenly they can't sell the NFT to anyone, because you were the only one buying ever.

Congrats, you just scammed someone for $500.

Re: Crypto Wash Trading

#15

Post by dustingetz » Fri, Nov 19, 2021, 4:59 PM UTC

rossdavidh wrote: post #2

Can somebody explain to a crypto-naif what "wash trading" means here?

"Painting the tape is an illegal activity that is prohibited by the Securities and Exchange Commission (SEC) because it creates an artificial price. " https://www.investopedia.com/terms/p/paintingthetape.asp

Re: Crypto Wash Trading

#16

Post by belltaco » Fri, Nov 19, 2021, 5:00 PM UTC

rossdavidh wrote: post #2

Can somebody explain to a crypto-naif what "wash trading" means here?

A real life example is a store where the owners hire fake shoppers to crowd the store and "buy" items that are later returned to the store and refunded. All to make the shop look busy compared to other shops, in order to attract customers and claim that they have more foot traffic than competing stores.

A wash trade is anything that results in the equivalent outcome as earlier. It was used to get fraudulent tax refunds so it's not allowed to be used that way. An example is buying AAPL at $150 in January, and it falls to $100 in December. One could sell the stock to claim the deduction on the tax return for the year, but would miss out on potential gains on the stock. So what people would do is sell the stock on Dec 31st and buy it back on January 2nd in the new year. So IRS made a rule that doing such a thing is a wash trade and not eligible for tax deductions on the booked loss for the year.

Re: Crypto Wash Trading

#17

Post by biddit » Fri, Nov 19, 2021, 5:00 PM UTC

So this implies that the crypto markets are actually far less liquid than the trade volume implies. Suddenly those massive 10% +/- fluctuations in a day make a lot more sense.

Re: Crypto Wash Trading

#18

Post by cblconfederate » Fri, Nov 19, 2021, 5:00 PM UTC

This is great knowledge. People should not be investing based on what's popular or what is being traded. Better hold than gamble. Monetary speculation should be dumb in a sound money system

Re: Crypto Wash Trading

#19

Post by capableweb » Fri, Nov 19, 2021, 5:01 PM UTC

I recently had to go through extensive KYC/AML email conversations and phone calls with bunch of exchanges like Coinbase and others. Got me interested how wash trading could happen, when they were so strict with me, and which exchanges were investigated.

These seems to be the exchanges they investigated. Would be interesting to see a breakdown of percentage per exchange, as I still don't understand how wash trading can happen at Coinbase since they seem to be very strict.

    Exchange Code Exchange Name

    Panel A Regulated exchanges
    R1 Bitstamp
    R2 Coinbase
    R3 Gemini

    Panel B Unregulated Tier-1 exchanges
    UT1 Binance
    UT2 Bittrex
    UT3 Bitfinex
    UT4 HitBTC
    UT5 Huobi
    UT6 KuCoin
    UT7 Liquid
    UT8 Okex
    UT9 Poloniex
    UT10 Zb

    Panel C Unregulated Tier-2 exchanges
    U1 Bgogo
    U2 Biki
    U3 Bitz
    U4 Coinbene
    U5 DragonEX
    U6 Lbank
    U7 Mxc
    U8 Fcoin
    U9 Exmo
    U10 Coinmex
    U11 Bibox
    U12 Bitmart
    U13 Bitmax
    U14 Coinegg
    U15 Digifinex
    U16 Gateio

Re: Crypto Wash Trading

#20

Post by sonthonax » Fri, Nov 19, 2021, 5:01 PM UTC

Basically the lesson here is: don't underestimate how stupid HFT algorithms can be, especially when there isn't really a penalty for doing this.

I've worked at an above board HFT with a big crypto desk, and this happened constantly.