Cryptocurrencies continue to be the weak point of this sector at the moment: negative news for Bitcoin (BTC) and cryptocurrencies related to these platforms.
Crypto news: Bitcoin (BTC) and money laundering
The latest news is about money laundering.
This is a long article from the NBER entitled Crypto Laundering Trading, which is devoted to cryptocurrency exchanges in relation to money laundering.
The NBER, or National Bureau of Economic Research, is a private, nonpartisan U.S. organization that conducts analysis of major economic issues.
It is based in Cambridge, Massachusetts, home of the world-renowned MIT (Massachusetts Institute of Technology), and consists of a network of nearly 1,700 economists who hold key positions at North American colleges and universities.
Therefore, its research is academic and must be independent, although it is subsidized by public institutions as well as private foundations, corporations and individuals.
Crypto Wash Trading review
The Crypto Wash Trading study was conducted by Lin William Cong, Xi Li, Ke Tang and Yang Yang and was jointly funded by the Ewing Marion Kauffman Foundation and the National Science Foundation of China.
The authors are from Cornell University, Tsinghua University and SC Johnson College of Business.
Conducted on 29 cryptocurrency exchanges with systematic testing using powerful statistical and behavioral models to verify trading and detect fraudulent transactions. Exchanges studied include Binance, Coinbase, Bitstamp, Gemini, Bittrex, Bitfinex, HitBTC, Huobi, KuCoin, Liquid, Okex, Poloniex and others.
The stock markets analyzed are regulated exchanges because they exhibit consistent patterns that are also observed in traditional financial markets. In this way, detecting anomalies reveals possible manipulation.
The fact is that on average, more than 70% of the volume of these exchanges was found to be anomalous. The authors of the analysis claim that trillions of dollars of fictitious volume will be created annually to improve stock market ratings and temporarily distort prices.
In some exchanges, the volume of trading related to wash trading will even reach 80%, which in the first quarter of 2020 alone will be more than 4.5 trillion dollars in spot markets and 1.5 trillion dollars in derivatives markets.
Therefore, the preliminary data refer to 2020, a year in which trading volumes were particularly low, especially in the first three quarters.
But from the reasons the authors list as the main causes of these anomalies, it is quite clear that only some of them are actually related to money laundering.
In other words, it appears that all these fictitious volumes are not actually generated by money laundering activities, but rather mainly by exchanges themselves or attempts to manipulate information about cryptocurrency prices.
For example, the report clearly mentions the procedure of buying and selling the same asset at the same time in order to create artificial exchanges to distort price, volume and volatility.
Another odd number is the volume of regulated exchanges. In fact, according to the report, by the middle of this year, only less than 3% of the total cryptocurrency spot trading volume was still on Coinbase, BitStamp, Gemini, BitFlyer, etc. came from regulated exchanges. This means that the world’s largest exchanges, including Binance, are considered unregulated, despite the fact that in some countries they operate according to the law and only after receiving special permits or licenses.
One explanation could be related to the Chinese market, which should theoretically not exist due to the ban on cryptocurrency trading, but instead likely continues to be there and has significant volumes.
Crypto and Bitcoin (BTC) News: Switch to Regulated Exchanges
The report did not look at FTX, although in theory it was one of the exchanges that could be considered regulated.
FTX was based in the Bahamas and thus regulated by the Bahamas, but it operated primarily in the United States under regular licenses and, in fact, under the theoretical supervision of US government agencies. In fact, both the SEC and the CFTC later sued him for regulatory violations after the collapse.
This gives a good idea of how poorly regulated exchanges can perform, to the extent that Celsius, one of the biggest cryptocurrency failures of 2022, was associated with a regulated company, even though it was not an exchange.
And while even regulated cryptocurrency exchanges can easily be tainted by unethical, even illegal behavior, it’s easy to imagine how much can happen on unregulated exchanges.
It should be added that decentralized exchanges, which are completely unregulated, still register very small volumes compared to what happens in centralized exchanges, especially when crypto derivatives are also taken into account.
The cryptocurrency exchanges sub-sector remains one of the most critical areas in the cryptocurrency industry at the moment, mainly due to the often opaque and manipulated dynamics that still dominate its operations.